1280EconomicsMedium
Suppose the State Bank purchases a Rs 1,000 government bond from you. If you deposit the entire Rs 1,000 in you bank what is the total potential change in the money supply as a result of the State Bank’s action if the your bank’s reserve ratio is 20 percent?
ARs 5,000
BRs 4,000
CRs 0
DRs 1,000
Correct answer
A. Rs 5,000
Explanation
The correct answer is Rs 5,000.