Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately:
A. Increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million
B. Increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million
C. Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million
D. Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million
D. Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million
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What will be an ideal response?
In the short run in the Keynesian model, an increase in the domestic money supply would cause domestic output to ________ and the domestic real interest rate to ________
A) rise; rise B) fall; rise C) rise; fall D) fall; fall