Suppose a Bank Has $10,000 in Deposits and $1,000 in Reserves

question 221

Multiple Choice

Suppose a bank has $10,000 in deposits and $1,000 in reserves. The required reserve ratio is 5%. Which of the following occurs if the required reserve ratio is increased to 10%?

• A) The bank's required reserves will decrease to $500.
• B) The bank's excess reserves will increase to $1,000.
• C) The bank's required reserves will increase to $1,000.
• D) The bank's ability to create loans increases by 5%.

Understand the concept of externalities and how they impact social welfare.

Identify positive externalities and examples of activities that generate them.

Discuss the role of government intervention in addressing externalities and achieving social optimum.

Explain the difference between marginal social benefit (MSB) and marginal social cost (MSC).

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