Assume That the Banks Do Not Hold Any Excess Reserves

question 92

Multiple Choice

Assume that the banks do not hold any excess reserves and the reserve ratio is 20%. If Sarah deposits $5,000 in cash in her checking account, the money supply can potentially increase by an additional:

• A) $20,000.
• B) $25,000.
• C) $5,000.
• D) $1,000.

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Definitions:

Asset And Liability Account Balances

The respective values of a company's current and non-current assets, and its current and long-term liabilities at a point in time.

Local Currency

Refers to the legal tender or official currency that is used within a country's borders.

Ending Inventory

The total value of goods available for sale at the end of an accounting period.