If the Banking System Has $5 Million in Excess Reserves

question 216

Multiple Choice

If the banking system has $5 million in excess reserves and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

• A)$25 million
• B)$20 million
• C)$5 million
• D)$2.5 million

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Definitions:

Price Taker

A price taker is a firm or individual who has no power to influence the prices in a market, taking the prevailing prices as given.

Short-Run Supply Curve

A graphical representation showing the quantity of goods a firm is willing to produce and sell at different price levels in the short term.

Marginal Cost

The expenditure required to produce one more unit of a product or service.

Average Variable Cost

The variable cost per unit of output, calculated by dividing total variable costs by the quantity of output produced.