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A purchase of U.S. government securities by the Fed causes   A. a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased.   B. a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system.   C. an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system.   D. a multiple expansion of the money supply because the required reserve ratio is less than one

A purchase of U.S. government securities by the Fed causes   A. a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased.   B. a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system.   C. an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system.   D. a multiple expansion of the money supply because the required reserve ratio is less than one

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Monetary System
Section: Chapter Questions
Problem 12PA
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A purchase of U.S. government securities by the Fed causes
 
A.
a multiple contraction of the money supply because deposits fall by more than the amount of the securities purchased.
 
B.
a contraction of the money supply equal to the amount of the securities because all other transactions occur within the banking system.
 
C.
an expansion of the money supply equal to the amount of the securities because all other transactions occur within the banking system.
 
D.
a multiple expansion of the money supply because the required reserve ratio is less than one
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