Suppose the central bank purchases a government bond from a person who deposits the entire amount received from the sale in her bank the money supply will ?

A. rise by an amount that depends on the bank’s reserve ratio
B. rise by less than the amount of the deposit
C. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio
D. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio
E. be unchanged

Correct Answer: A. rise by an amount that depends on the bank’s reserve ratio ✔

Last Updated: June 18, 2019