Question

If the required reserve ratio is 10% and the central bank sells $100,000 of government securities to bank X, then government securities will_______ by ______ and the money supply will _______ *

1) Increase; $100,000; decrease by $1,000,000

2) Increase; $100,000; increase by $100,000

3) Decrease; $100,000; decrease by $100,000

4) Decrease; $100,000; increase by $1,000,000​

Answer 1

1) Increase; $100,000; decrease by $1,000,000

Step-by-step explanation:

Given that

The required reserve ratio is 10%

And, the sale of the government securities is $100,000

So the government securities would be increased by $100,000 and the money supply would be decreased by

= $100,000 ÷ 0.10

= $1,000,000

Hence, the correct option is 1.