If Commercial Banks Are Maintaining a 5 Percent Reserve/deposit Ratio

question 74

Multiple Choice

If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio to 3 percent, then banks may ________ their loans and deposits, and the money supply may ________.

• A)increase; increase
• B)increase; decrease
• C)decrease; increase
• D)decrease; decrease

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Definitions:

Statement of Income

A financial statement that shows a company's revenues and expenses over a specific period, resulting in a net income or net loss.

Equity

The value of ownership interest in the firm, calculated as total assets minus total liabilities.

Account Payable

Liabilities of a company that are owed to creditors or suppliers for purchases made on credit.

Suppliers

They are businesses or individuals that provide the goods or services that companies need to operate and produce their own goods.