Assume That There Is a 25 Percent Reserve Ratio and That

question 70

Multiple Choice

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities.If the securities are purchased from the nonbank public, this action has the potential to increase money supply by a maximum of

• A)$16 billion, but only by $14 billion if the securities are purchased directly from commercial banks.
• B)$14 billion, but by $16 billion if the securities are purchased directly from commercial banks.
• C)$16 billion, and also by $16 billion if the securities are purchased directly from commercial banks.
• D)$14 billion, and by $20 billion if the securities are purchased directly from commercial banks.

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Definitions:

Private Property

Land or belongings owned by individuals or corporations, distinct from property owned by the government or community.

Market System

This economic structure allows for the determination of investment, production, and distribution through the interplay of supply and demand, ensuring that the pricing of goods and services occurs in an open price system.

Distribution Of Goods

The process of making products available to consumers by transporting and storing them from the point of production to the point of sale.