In a Fractional Reserve Banking System with No Excess Reserves

question 25

Multiple Choice

In a fractional reserve banking system with no excess reserves and no currency holdings, suppose the central bank buys $100 million of bonds. Which statement best describes the effects of this open-market operation?

• A) Reserves and the money supply increase by less than $100 million.
• B) Reserves increase by $100 million, and the money supply increases by $100 million.
• C) Reserves increase by $100 million, and the money supply increases by more than $100 million.
• D) Both reserves and the money supply increase by more than $100 million.

---

Definitions:

Materials Task

A methodological approach in cognitive or developmental psychology that involves manipulating physical materials to assess cognitive processing or learning outcomes.

Years of Schooling

The total number of years that an individual has spent in formal education.

Inductive Reasoning

Reasoning that involves drawing conclusions that are suggested but are not necessarily true.

Deductive Reasoning

Drawing conclusions from only the given premises.