. The Fed buys $1 million in U.S. government securities. A bond dealer sells the

Question

. The Fed buys $1 million in U.S. government securities. A bond dealer sells the securities and deposits its check into the Bank ABC. Prior to the transaction, Bank ABC had zero excess reserves. If the required reserve ratio is 20 percent, the bank now has a. $1 million more in total reserves and $800,000 more in excess reserves b. $800,000 more in total reserves and $800,000 more in excess reserves c. $1 million more in both total and excess reserves d. $800,000 more in total reserves and excess reserves unchanged

Explanation / Answer

If the required reserve ratio is 20 percent, the bank now has $800,000 more in total reserves and $800,000 more in excess reserves. So the correct option is B.

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