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Bonds to a commercial bank

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Reference no: EM131335014

Suppose that the required reserves ratio is 5%. Assume that all loans are deposited in checking accounts. If the Fed sells $1000 of US bonds to a commercial bank, we expect:

A. The money supply to fall by $1000.

B. The money supply to fall by $20,000.

C. The money supply to increase by $1000.

D. The money supply to increase by $20,000.

E. The money supply to be unchanged.

Reference no: EM131335014

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