The Required Reserve Ratio Is 0

question 116

Multiple Choice

The required reserve ratio is 0.2, the level of deposits is $1,000, the level of currency held by the public is $500, the level of excess reserves is $300, the level of money market funds is $500 and the level of time deposits is $1,500. If the Fed lowers the monetary base by $100, what is the change in M1?

• A) M1 falls by $350
• B) M1 falls by $244
• C) M1 falls by $150
• D) M1 falls by $100

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Definitions:

Net Sales

The total revenue from sales minus any deductions for returned goods, allowances, and discounts.

Net Income

The remaining earnings of a company after deducting all expenses and taxes from the gross revenues.

Net Income

The total profit of a company after accounting for all costs and expenses, including taxes and operational expenses.

Accrued Revenues

Revenues that have been earned but not yet received in cash or recorded at the statement date.