Suppose the Required Reserve Ratio Is 10 Percent, and Banks

question 90

Multiple Choice

Suppose the required reserve ratio is 10 percent, and banks hold no excess reserves. If the Fed purchases $10 million worth of government bonds from Bank C, the amount of loans held by Bank C will

• A)increase by $10 million.
• B)decrease by $100 million.
• C)increase by $100 million.
• D)decrease by $10 million.
• E)not change.

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Definitions:

Lowest Terms

A fraction reduced to the lowest terms where the numerator and denominator are the smallest possible numbers that retain the original value.

Fractions

Numerical quantities that represent a part of a whole, commonly expressed with a numerator and a denominator.

Lowest Terms

The most basic version of a fraction, in which both the top and bottom numbers have been minimized to the lowest possible figures.

Pasta Sauce

A flavored liquid or semi-liquid mixture served with pasta, typically made from ingredients such as tomatoes, herbs, and spices.