Suppose the Reserve Ratio Is 20% for All Banks

question 77

Multiple Choice

Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will:

• A) decrease by $400.
• B) increase by $400.
• C) decrease by $1,000.
• D) increase by $1,000.

---

Definitions:

Allowance for Doubtful Accounts

A contra-asset account that reduces total accounts receivable to reflect the estimated amount of credit sales that may not be collected.

Credit Balance

A positive balance within an account, indicating that a company or individual has received more in deposits than it has spent.

Credit Sales

Sales made by a business that do not require immediate payment, but rather are paid for by the buyer at a later date.

Analysis of Receivables Method

A technique used in accounting to estimate the amount of receivables that will likely remain uncollectable.