(Table) SCENARIO: Assume That Empathy State Bank Begins with the Balance

question 239

Multiple Choice

(Table) SCENARIO: Assume that Empathy State Bank begins with the balance sheet shown and is fully loaned-up. If this bank is subject to a reserve requirement of 5%, what is the amount of its excess reserves?

• A) $2,500
• B) $5,000
• C) $10,000
• D) Negative. This bank does not have excess reserves; it needs $2,500 to meet its reserve requirement.

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Definitions:

Expected Utility

Expected utility theory represents how rational individuals with preferences choose among risky alternatives to maximize their satisfaction or utility.

Toll Road

A public or private roadway for which a fee is assessed for passage, commonly used to fund road maintenance or construction projects.

Fine

A monetary penalty imposed by a government or legal authority as punishment for breaking a law or regulation.

Risk-Averse

A preference for guaranteed outcomes over gambles, even if the gamble might have a higher expected return due to the dislike of uncertainty.