Suppose That, for Every 1-Percentage-Point Decline in the Discount Rate

question 267

Multiple Choice

Suppose that, for every 1-percentage-point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to
3) 5 percent, bank reserves will

• A) increase by $1 billion and the money supply will increase by $5 billion.
• B) decline by $1 billion and the money supply will decline by $10 billion.
• C) increase by $1 billion and the money supply will increase by $10 billion.
• D) increase by $10 billion and the money supply will increase by $100 billion.

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Definitions:

Expression Value

The result obtained after evaluating a combination of variables, operators, and values in programming.

Incremented

The process of increasing the value of a variable, usually by one, in programming.

Named Constant

A variable whose value is initialized at the time of declaration and cannot be changed during the program's execution, used to make code more readable and maintainable.

Program Execution

The process by which a computer runs the instructions in a program or script, translating them into machine-level commands to be performed.