Let the Reserve Requirement Be 15 Percent for Deposits

question 8

Multiple Choice

Let the reserve requirement be 15 percent for deposits. Assume there are no excess reserves. If currency demand equals 40 percent of deposits and total reserves equal $60 billion, then an open market sale of $1.5 billion in government bonds should

• A) increase the money supply from $560 billion to $574 billion.
• B) increase the money supply from $400 billion to $410 billion.
• C) reduce the money supply from $400 billion to $390 billion.
• D) reduce the money supply from $160 billion to $156 billion.
• E) reduce the money supply from $560 billion to $546 billion.

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Definitions:

Antedated Checks

Checks written with a date earlier than the actual date of writing, often used in accounting to reflect a transaction that occurred at an earlier time.

Postdated Checks

Checks written with a future date, implying they cannot be cashed or deposited until that date arrives.

Insufficient Funds

A situation where one's bank account does not have enough money to cover checks or electronic transfers made against it, potentially resulting in a bounced check or declined transactions.

Drawer's Account

In financial terms, the account belonging to the person who writes a check or draft instructing a bank to pay a designated amount of money.