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Question
When the Fed buys a $10,000 bond from a bond dealer,
A) reserves of the banking system increase by $10,000, but the money supply will only be able to increase by something less than this amount.
B) reserves of the banking system increase by $10,000, but the money supply can increase by more than $10,000.
C) reserves of the banking system remain unchanged, but the money supply increases by $10,000.
D) reserves of the banking system remain unchanged, but the money supply decreases by $10,000.
Answer
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