Final answer:
The sale of $46 million Treasury securities by the Federal Reserve, with a required reserve ratio of 30% and banks holding 10% in excess reserves, would lead to a potential decrease in the money supply. However, the answer choices provided do not match the calculated potential decrease. It is suggested to review the question and answer choices for accuracy.
Step-by-step explanation:
The question relates to how the sale of Treasury securities by the Federal Reserve will impact the money supply. Given a required reserve ratio of 30%, banks are obligated to keep 30% of any deposits as reserves. When the Federal Reserve sells $46 million in Treasury securities, banks purchasing these will reduce their available reserves, and consequently, they will have to decrease their lending to maintain the required reserves. If banks also hold excess reserves of 10%, they would be even less able to lend out additional funds. The maximum amount the money supply can decrease is the total amount of the sale multiplied by the money multiplier. In this case, since the required reserve ratio is 30% (or 0.3), the money multiplier is 1 divided by the reserve ratio (1 / 0.3), which equals approximately 3.33. However, taking into account that banks hold an additional 10% in excess reserves, the effective reserve ratio becomes 40% (or 0.4), yielding a money multiplier of 2.5. Thus, the maximum decrease in the money supply would be the sale amount multiplied by this adjusted money multiplier, which is $46 million times 2.5, equaling $115 million. However, as the choices given do not include this amount, we will make the assumption that we should not account for the excess reserves in our calculation. In this case, we would use the original money multiplier of 3.33, and the maximum decrease in money supply would be $46 million times 3.33, equaling $153.18 million. Again, none of the provided choices match this calculation.
Since the available answer choices do not match the calculated figures, and there may be an error in the question or the answer choices provided, I would suggest carefully reviewing the specifics of the question to ensure that all relevant information has been considered.