Suppose the Required Reserve Ratio Is 10

question 26

Multiple Choice

Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has

• A) increased the M1 measure of money supply by $1,000.
• B) reduced the bank's required reserves by $1,000.
• C) increased the M2 measure of money supply by $1,000.
• D) not changed the M1 or M2 measures of money supply.

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Definitions:

Short Run

In economics, the short run is a period during which at least one input, such as factory size or machinery, is fixed and cannot be changed.

Long Run

A period of time in which all factors in a production process can be varied, allowing for the adjustment to changes in market or economic conditions.

Economic Power

The ability of an entity or country to influence or control economic activities, including production, trade, and consumption.

Political Power

Political power is the capacity or ability of a political entity, such as a state or government, to control or influence the behavior of individuals and organizations within a society.