Question

If the Federal Reserve conducts a $10 million open-market sale and the reserve requirement is 20%, the maximum change in the money supply is: a decrease of $10 million. a decrease of $8 million. an increase of $10 million. a decrease of $50 million.

Answer 1

Answer:

a decrease of $50 million.

Explanation:

Calculation to determine what the maximum change in the money supply is:

Using this formula

Maximum change in the money supply=Federal Reserve /Reserve requirement

Let plug in the formula

Maximum change in the money supply=$10/20%

Maximum change in the money supply=$50 million Decrease

Therefore the maximum change in the money supply is: a decrease of $50 million.