Assume There Is No Leakage from the Banking System and That

question 234

Multiple Choice

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 12.5%. If the Fed buys $20 million worth of government securities from the public, the change in the money supply will be

• A) $20 million.
• B) $125 million.
• C) $160 million.
• D) $250 million.

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Definitions:

Special Order

A customer request for a product made to their specific requirements, which may differ from the seller's standard offerings.

Shipping Costs

Expenses associated with the delivery of goods from the seller to the buyer, which can include packing, postage, and insurance costs.

Cash Payback Formula

A method used to calculate the amount of time it takes for an investment to generate cash flows sufficient to recoup the initial investment cost.

Net Income

The net income of a company, which is the remaining amount after deducting all costs and taxes from its total revenue.