A Bank Has Excess Reserves of $1,000,000 and Makes a New

question 66

Multiple Choice

A bank has excess reserves of $1,000,000 and makes a new loan for $500,000.If the bank faces a 10 percent required reserve ratio,by how much will the money supply increase when the loan is made?

• A) $0
• B) $50,000
• C) $5,000,000
• D) $1,500,000
• E) $2,000,000

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Definitions:

Face Value

The nominal or original value of a financial instrument as stated by its issuer.

Face Value

The nominal or original value of a security or financial instrument as stated by the issuer.

Note Payable

A written promise to pay a specific sum of money, on demand or at a set time, to the holder of the note.

Maturity Value

The amount that will be paid to the holder of a financial instrument at its maturity date, including principal and any remaining interest.