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The reserve ratio is 10 percent. If the Fed buys​ $1 million of U.S. government securities...

The reserve ratio is 10 percent. If the Fed buys​ $1 million of U.S. government securities from a bond dealer by transmitting the funds to the​ dealer's deposit account at Bank​ ABC, then

A. Bank ABC can make additional loans up to​ $900,000. B. Bank ABC cannot make any additional​ loans, but the system as a whole can make additional loans up to​ $1 million. C. Bank ABC can make no additional loans. D. Bank ABC can make additional loans up to​ $1 million.

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Answer #1

A. Bank ABC can make additional loans up to​ $900,000.

Required reserves = 10% of 1 million = 100000

Loans that can be made= 1 million - 100000= 900000

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