The Fed conducts an open market purchase of $10 million in government securities. If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system.
A) maximum increase in money supply = $10 million
B) maximum decrease in money supply = $10 million
C) maximum increase in money supply = $50 million
D) maximum decrease in money supply = $50 million
Ans: C) maximum increase in money supply = $50 million
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