Suppose the Required Reserve Ratio Is 10

question 26

Multiple Choice

Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has

• A) increased the M1 measure of money supply by $1,000.
• B) reduced the bank's required reserves by $1,000.
• C) increased the M2 measure of money supply by $1,000.
• D) not changed the M1 or M2 measures of money supply.

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Definitions:

Inflation

The velocity at which the overall cost of products and services climbs, reducing purchasing capability.

Full Disclosure

Full disclosure is a policy requiring companies to provide all relevant, material information about their operations, financial condition, and management to investors and stakeholders.

SEC

The United States Securities and Exchange Commission is a federal body tasked with overseeing the securities market and safeguarding investors.

Fair Price

The equilibrium price for a good or service in the market where the quantity supplied equals the quantity demanded.