If the Reserve Ratio Is 10 Percent, Banks Do Not

question 153

Multiple Choice

If the reserve ratio is 10 percent, banks do not hold excess reserves, people hold only deposits and no currency, then when the Fed sells $10 million worth of bonds to the public, bank reserves

• A)increase by $1 million and the money supply eventually increases by $10 million.
• B)increase by $10 million and the money supply eventually increases by $100 million.
• C)decrease by $1 million and the money supply eventually increases by $10 million.
• D)decrease by $10 million and the money supply eventually decreases by $100 million.

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Definitions:

Energy Level

A specific quantized state of energy that an electron in an atom can have.

Electrons

Subatomic particles with a negative electric charge, found in all atoms and acting as the primary carrier of electricity in solids.

Second Shell

Refers to the second energy level or electron shell of an atom, which can hold up to eight electrons.

Electrons

Negatively charged particles present in all atoms that serve as the main conduits for electrical current in solid materials.