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Suppose the Fed makes a $4000 open market purchase of a bond. The required reserve ratio...

Suppose the Fed makes a $4000 open market purchase of a bond. The required reserve ratio is 5%. How much will total reserves increase after this purchase? Group of answer choices $0

$200

Any value between $0 and $4000 is posible.

$4000

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Answer #1

The reserve ratio is the proportion of deposits that are saved as reserves in banks that cannot be used for lending purposes. It is given that the Fed makes $4,000 open market purchase of a bond, it will add 5% of $4,000 = $200 as reserves of the bank and the remaining $3,800 will be used for lending purposes by the bank. So, the correct answer is 'Option B'.

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