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Suppose That the Banking System Does NOT Hold Excess Reserves

question 61

Multiple Choice

Suppose that the banking system does NOT hold excess reserves and the reserve ratio is 25%. If Molly deposits $1,000 cash in her checking account, the banking system can increase the money supply by an additional:


Definitions:

Compounded Quarterly

An approach to interest calculation where the earned interest is compounded to the principal quarterly, resulting in the accumulation of interest upon interest.

Repaid

The process of paying back money previously borrowed from a lender.

Payments

The act of transferring money or goods in exchange for a product or service, or the fulfillment of an obligation.

Compound-Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit or loan.

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