Use the Following to Answer Questions

question 124

Multiple Choice

Use the following to answer questions .
Exhibit: Fed Buys Bonds
Scenario 1: Fed Buys Bonds from Sheila Jones
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed buys a $100,000 bond from Sheila Jones, who banks at the Perez Bank, and that she deposits her check in her checking account at Perez Bank.
-(Exhibit: Fed Buys Bonds) Immediately following Sheila's $100,000 deposit into her checking account, Perez Bank

• A) has no excess reserves.
• B) has $10,000 in excess reserves.
• C) has $90,000 in excess reserves.
• D) has $100,000 in excess reserves.

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Definitions:

Detrimental Effects

Negative impacts or consequences that can harm or hinder someone or something's state, functioning, or well-being.

Gross National Product

The total value of all goods and services produced by a country's residents and businesses, including those produced abroad, over a specific time period.

Gross Domestic Product

A measure of the economic output of a country, calculating the total value of all goods and services produced over a specific time period.

Dollar Value

A measure of the worth of an item, service, or currency expressed in terms of the amount of money it can be exchanged for in U.S. dollars.