AP Macroeconomics Question 173: Answer and Explanation

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Question: 173

12. Assume the reserve requirement is 5 percent. If the FED buys $4 million worth of government securities in an open market operation, then the money supply can

  • A. increase by $1.25 million.
  • B. decrease by $1.25 million.
  • C. increase by $20 million.
  • D. decrease by $20 million.
  • E. increase by $80 million.

Correct Answer: E