The banking system currently has $200 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 4 percent. If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds, then by how much does the money supply change?

a. It rises by $600 billion.

b. It rises by $125 billion.

c. It falls by $2,500 billion.

d. None of the above is correct.

Answer rating: 100% (QA)

The banking system currently has 200 billion of reserves none of which are excess This means all the ... View the full answer