Table 29-1Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars) Banks ​ Federal Reserve System ​ Assets Liab. Assets Liab. Reserves +$10 ​ U.S. Gov’t Bank Reserves U.S. Gov’t ​ Sec. +$10 +$10 Securities−$10 ​ ​ ​ ​ After the transaction in Table 29-1 is completed, what happens to actual reserves, required reserves, and excess reserves? Assume the required reserve ratio is 25 percent.

A. Actual reserves increase by $10 million, required reserves increase $2.5 million, and excess reserves increase by $7.5 million.
B. Actual reserves decrease by $10 million, required reserves decrease $2.5 million, and excess reserves decrease by $7.5 million.
C. Actual reserves decrease by $10 million, required reserves decrease by $10 million, and excess reserves are unchanged.
D. Actual reserves increase by $10 million, required reserves are unchanged, and excess reserves increase by $10 million.

ANSWER:

D. Actual reserves increase by $10 million, required reserves are unchanged, and excess reserves increase by $10 million.