If a Bank Uses $80 of Reserves to Make a New

question 43

Multiple Choice

If a bank uses $80 of reserves to make a new loan when the reserve ratio is 25 per cent, then:

• A)the money supply initially increases by $20
• B)the money supply initially decreases by $80
• C)the level of wealth in the economy will not have changed
• D)the money supply will eventually increase by more than $20 but less than $80

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