Assume That the Federal Reserve Sets the Reserve Requirement at 10

question 50

Multiple Choice

Assume that the Federal Reserve sets the reserve requirement at 10%. If a bank has $100 million in deposits, then its required reserves must equal

• A) $1 million.
• B) $10 million.
• C) $90 million.
• D) $110 million.

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Definitions:

Opportunity Cost

Opportunity cost is the cost of the opportunity forgone to pursue one option instead of another, representing the benefits an individual, investor, or business misses out on when choosing one alternative over another.

Investment

The allocation of resources, usually monetary, into assets or projects expected to generate future profits or income.

Equilibrium Interest

The interest rate at which the demand for funds equals the supply of funds, balancing savings and investment in the economy.

Loanable Funds

Funds available for borrowing, influenced by savings and investments, which affect interest rates and economic activity.