Assume the Fed purchases a government security from a private dealer and pays with a Fed check of 100,000 . If this check is deposited by the dealer in a bank with a 10 percent required reserve ratio, the bank can extend new loans in the amount of:
a. 20,000.
b. 90,000.
c. 100,000.
d. 120,000.
Question 2
If the Fed sells 10 million in bonds to a bank, and the required reserve ratio is 20 percent, then the banking system can:
a. decrease the money supply by up to 10 million.
b. decrease the money supply by up to 40 million.
c. decrease the money supply by up to 50 million.
d. decrease the money supply by up to 2 million.
e. increase the money supply by up to 50 million.
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