Suppose the Federal Reserve System Has a Required Reserve Ratio

question 9

Multiple Choice

Suppose the Federal Reserve System has a required reserve ratio of 0.20.If the Open Market Committee sells $10 billion of securities to the commercial banking system,then before the money multiplier takes effect,initially excess reserves

• A)Decrease by $10 billion.
• B)Increase by $50 billion.
• C)Increase by $10 million.

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Definitions:

Securities Held

Financial instruments that are owned and held by an investor, including stocks, bonds, or other investments.

Declared

In financial context, it often refers to the official announcement made by a company's board of directors to pay dividends to its shareholders.

Recognized

Recognized refers to the formal acknowledgment in financial reporting that an item is included in the financial statements of a business.

Available-for-Sale Securities

Financial instruments that are purchased with the intent to sell before they reach maturity and are classified as neither held for trading nor held to maturity.