Suppose the Reserve Ratio Is 25% and Banks Do Not

question 34

Multiple Choice

Suppose the reserve ratio is 25% and banks do not hold excess reserves.When the Fed sells $40 million of bonds to the public who then deposit the proceeds into the banking system,

• A)bank reserves increase by $40 million and money supply could increase by a maximum of $40 million.
• B)bank reserves increase by $40 million and money supply could increase by a maximum of $160 million.
• C)bank reserves decrease by $40 million and money supply could decrease by a maximum of $40 million.
• D)bank reserves decrease by $40 million and money supply could decrease by a maximum of $160 million.

---

Definitions:

Oriented

Being aware of one's own self, location, and the current time; a state of mental alertness and understanding of one's environment.

Focal Neurologic Signs

Specific and localized neurological deficits that indicate dysfunction in a particular area of the brain or nervous system.