If the required reserve ratio is 10 percent and the Fed buys a $5,000 security from a depository institution,the money supply:

A) increases by $15,000.
B) increases by $5,000.
C) decreases by $5,000.
D) increases by $50,000.
E) decreases by $50,000.

Required Reserve Ratio

The fraction of deposits that a bank is required by regulation to hold in reserve, either in its own vaults or with a central bank, and not lend out.

Money Supply

The sum of physical currency, demand deposits, savings, and other liquid assets in a country's economy.

Fed

Known as the Federal Reserve System, the central bank of the United States oversees the nation's monetary policy.