If the Average Reserve Ratio in the Banking System Is

question 2

Multiple Choice

If the average reserve ratio in the banking system is 20% and the Fed increases bank reserves by $100,000, what will be the total potential increase in the money supply?

• A) $100,000
• B) $120,000
• C) $500,000
• D) $2 million

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Definitions:

Land Account

An account on the balance sheet that reports the cost of land owned by a company.

Double-declining-balance

A method of accelerated depreciation that doubles the rate at which an asset's book value declines, compared to straight-line depreciation.

Straight-line Depreciation

A method of allocating the cost of a tangible asset evenly over its useful life.

Financial Accounting

The field of accounting focused on reporting financial information and transactions for decision makers outside the organization.