Suppose that, for every 1-percentage-point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to 4.25 percent, bank reserves will: Group of answer choices
A. increase by $0.5 billion and the money supply will increase by $2.5 billion.
B. decline by $0.5 billion and the money supply will decline by $2.5 billion.
C. increase by $0.75 billion and the money supply will increase by $3.75 billion.
D. increase by $1 billion and the money supply will increase by $5 billion.
Answers: 3
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Suppose that, for every 1-percentage-point decline of the discount rate, commercial banks collective...
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