If the Reserve Requirement Is 20%, Then a $1 Decrease

question 70

Multiple Choice

If the reserve requirement is 20%, then a $1 decrease in deposits means that the money supply

• A) will increase by $5.
• B) has the potential to increase by $20.
• C) will decrease by $5.
• D) has the potential to decrease by $5.

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Definitions:

Scarce Resources

Natural, human, and man-made inputs that have limited availability and are used for the production of goods and services.

Efficiency

The optimal use of resources to achieve the desired outcome with minimum waste or effort.

Redistributing Income

The transfer of income from certain individuals or groups to others through mechanisms like taxation, social security, and welfare programs, aiming at reducing income inequality.

Tradeoff

An exchange where one quality or aspect must be given up in order to gain another quality or aspect.