If the Required Reserve Ratio Is 20 Percent and the Fed

question 35

Multiple Choice

If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves,the money supply:

• A)decreases by $10,000.
• B)increases by $5,000.
• C)decreases by $5,000.
• D)increases by $50,000.
• E)decreases by $50,000.

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Definitions:

Rate of Return

A measure of the gain or loss on an investment relative to the amount of money invested.

Bond Investors

Individuals or entities that invest in bonds, which are debt securities issued by corporations or governments to raise funds.

Principal

The original amount of money invested or loaned, before interest, or the leader of an educational institution.

Interest Rate

The percentage at which interest is paid by a borrower for the use of money that they borrow from a lender, crucial in financial and monetary policies.