If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits:
A. Decreasing by $50 million.
B. Increasing by $5 million.
C. Increasing by $50 million
D. Not changing.
Answer:A
If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits:
A. Decreasing by $50 million. B. Increasing by $5 million. C. Increasing by $50 million D. Not changing.