A bank is operating in an economy in which the required reserve ratio is 5% and the bank keeps no excess reserves. If it sells $20 million worth of government bonds to the central bank, what will be the

A bank is operating in an economy in which the required reserve ratio is 5% and the bank keeps no excess reserves. If it sells $20 million worth of government bonds to the central bank, what will be the impact on the money supply?

a) A decrease of the money supply of a maximum $1 million

b) An increase of the money supply of a maximum $1 million

c) A decrease of the money supply of a maximum $400 million

d) An increase of the money supply of a maximum $400 million

e) A decrease of the money supply of a maximum $100 million

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A bank is operating in an economy in which the required reserve ratio is 5% and the bank keeps no excess reserves. If it sells $20 million worth of government bonds to the centr…

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