The FOMC wants to expand the money supply by $120 million and decides to buy bonds on the open market. Suppose the reserve requirement is 40% and banks do not hold any excess reserves.
Use the simple money multiplier to determine the dollar amount of bonds the Federal Reserve should trade to increase the money supply by $120 million?
A. $12 million
B. $22 million
C. $120 million
D. $48 million