If Reserves Increase by $4 Million and the Required Reserve

question 100

Multiple Choice

If reserves increase by $4 million and the required reserve ratio is 8%,what is the resulting change in checkable deposits (or the money supply) ,assuming that there are no cash leakages and that banks hold zero excess reserves?

• A)$3.2 million
• B)$3.7 million
• C)$5 million
• D)$50 million

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Definitions:

Settlement Date

The date on which a trade or transaction must be finalized with the transfer of the asset and payment completed.

Risk Of Default

The possibility or likelihood that a borrower will not be able to meet debt obligations, leading to financial losses for the lender.

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Financial contracts obligating the buyer to purchase an asset (like a commodity or financial instrument) and the seller to sell the asset at a predetermined future date and price.

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