Refer to the Given Balance Sheets and Assume the Reserve

question 330

Multiple Choice

Refer to the given balance sheets and assume the reserve ratio is 25 percent. Suppose the Federal Reserve Banks sell $2 in securities directly to the commercial banks. As a result of this transaction, the supply of money

• A) will decrease by $2, but the money-creating potential of the commercial banking system will not be affected.
• B) is not directly affected, but the money-creating potential of the commercial banking system will decrease by $8.
• C) will directly increase by $2, and the money-creating potential of the commercial banking system will decrease by an additional $8.
• D) will directly increase by $2, and the money-creating potential of the commercial banking system will increase by an additional $8.

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Definitions:

Delivery

In the context of services and goods, it refers to the process of transporting products from a source to a predefined destination.

Birth Process

The series of physiological and mechanical actions through which a fetus is expelled from the uterus and becomes a neonate.

Shortest Duration

Referring to the least amount of time required for completing a task or occurring an event.

Third Stage

Refers to a phase or level in a series of processes or developments, which implies progression or development from two preceding stages.