Answer:
d. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
Explanation:
When the Fed buys $4 million in securities put in checking accounts, the money supply grows by $4 million, which means that it directly increased by $4million.
Now, the commercial bank's money-creating capacity grows by:
Total change (money supply) = (1 ÷ Reserve ratio) × Amount deposit
= (1 ÷ 25%) × $4 million
= $16 million
Amount kept as reserves = Reserve ratio × Total change
= 25% × 16 = $4 million
Now by using following formula,
So, money creating potential of commercial banks = Total change - Amount kept as reserves
= $16 million - $4 million
= $12 million (Increased)