Suppose That the Banking System Has Excess Reserves of $10

question 53

Multiple Choice

Suppose that the banking system has excess reserves of $10 million, the desired reserve ratio is 10 percent and the currency drain ratio is 40 percent.By how much will the quantity of money increase?

• A)$28 million
• B)$50 million
• C)$40 million
• D)$22 million
• E)$12.5 million

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Definitions:

Logarithm

The power to which a base number must be raised to produce a given number.

Fechner's Law

A principle in psychophysics stating that the perceived intensity of a stimulus changes in proportion to the logarithm of the actual stimulus intensity.

Standard Stimulus

A specific environmental condition or stimuli that is consistently used throughout an experiment as a benchmark against which subjects' reactions or responses are measured.

Jnd

The just noticeable difference, the minimal change in stimulus intensity required to detect a difference between two stimuli.