The reserve requirement is 10%. Suppose that the Fed sells $50,000 worth of U.S.
ID: 1110691 • Letter: T
Question
The reserve requirement is 10%. Suppose that the Fed sells $50,000 worth of U.S. government securities from a bond dealer, electronically debiting the dealer's deposit account at Reliable Bank What is the maximum potential change in the money supply from this transaction, assuming that there are no leakages and that all rounds of deposit expansion have taken place? O A. The money supply can decrease by S50.000. O B. There will be no change in the money supply O C. The money supply can decrbase by $500,000 0 D. The money supply can decrease by $45,000. O E. None of the above Click to select your answer Type here to searchExplanation / Answer
Option C.
The money multiplier = 1/reserve requirement.
M = 1/0.10
M = 10.
The change in money supply = 50,000 * 10 = $500,000.