Question 17. The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank’s policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result? a) the money supply in the economy decreases b) decrease in Southern’s bond assets by $25 million c) increase in Southern’s loan assets of $25 million d) Southern’s net worth increases by $25 million

Question 17. The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank’s policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?
a) the money supply in the economy decreases
b) decrease in Southern’s bond assets by $25 million
c) increase in Southern’s loan assets of $25 million
d) Southern’s net worth increases by $25 million

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