Accounting is the information system that A. measures business activity. B. communicates the results to decision makers. C. proc
1 answer:
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Answer: Option (B) is correct.
Explanation:
Given that,
Reserve ratio = 25%
Fed reserve bank sells (securities) to public = $120 million
When a central bank sells the government securities to the public then as a result money supply in an economy decreases. This is an instrument of monetary policy known as " Open market Operations".
The supply of money is directly decreases by $120 million.
and
Money creating potential of banks = Amount of securities ×
= 120 ×
= 120 × 3
= $360 million
Hence, a decrease in money supply could eventually reach a maximum of $360 million.