Assume That the Banking System Has $200 Billion in Reserves

question 172

Multiple Choice

Assume that the banking system has $200 billion in reserves.There are no excess reserves in the system.If the reserve requirement is decreased from 10 percent to 8 percent, what will happen to the level of excess reserves in the system?

• A)There will be a deficiency of $40 billion in reserves.
• B)There will be a deficiency of $20 billion in reserves.
• C)There will be $20 billion in excess reserves.
• D)There will be $40 billion in excess reserves.

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Definitions:

Diminishing Marginal Product

The decrease in the output of an additional unit of input when all other inputs are held constant beyond a certain point.

Marginal Product

The additional output gained from employing one more unit of a certain input, keeping all other inputs constant.

Labor Productivity

The measure of economic performance calculated by dividing the output by the number of labor hours used to produce it.

Technological Advance

The process of developing and applying new techniques and tools to improve efficiency, productivity, or quality in various fields.