Suppose a Bank Has $50,000 in Deposits and $6,000 in Reserves

question 136

Multiple Choice

Suppose a bank has $50,000 in deposits and $6,000 in reserves. The required reserve ratio is 10%. Which of the following occurs if the required reserve ratio is increased to 12%?

• A) The bank's total reserves will fall.
• B) The bank will now be fully loaned up.
• C) The bank will have insufficient required reserves.
• D) The bank's profit will fall.

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Definitions:

Urea

A nitrogenous compound produced in the liver from ammonia and carbon dioxide, excreted by the kidneys.

Excretory System

The body system in animals that functions in osmoregulation and in the discharge of metabolic wastes.

Insects

Arthropods with a chitinous exoskeleton, a three-part body (head, thorax, abdomen), three pairs of jointed legs, compound eyes, and one pair of antennae.

Uric Acid

A waste product found in the blood, created by the breakdown of purines, which are substances found in certain foods and drinks.