Suppose the Federal Reserve System Has a Required Reserve Ratio

question 27

Multiple Choice

Suppose the Federal Reserve System has a required reserve ratio of 0.20 and there are no excess reserves in the system.If the Open Market Committee buys $20 million of securities from the commercial banking system,the total lending capacity of the system

• A)Increases by $20 million.
• B)Decreases by $20 million.
• C)Increases by $100 million.
• D)Decreases by $100 million.

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Definitions:

Matching Law

A principle in behavioral psychology stating that the proportion of responses directed toward an option matches the proportion of reinforcements obtained from that option.

Contend

To strive in opposition or against difficulties; to compete or argue.

Mowrer's Two-Factor Theory

Mowrer's Two-Factor Theory is a psychological theory that integrates classical conditioning and operant conditioning to explain the development of phobias and anxiety.

Avoidance

A behavioral response aimed to prevent an unpleasant outcome or stimulus, often developed as a coping mechanism in both humans and animals.