Assume That There Is a 25 Percent Reserve Ratio and That

question 357

Multiple Choice

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of

• A) $600 million, and also by $600 million if the securities are purchased directly from commercial banks.
• B) $800 million, and also by $800 million if the securities are purchased directly from commercial banks.
• C) $600 million, but by $800 million if the securities are purchased directly from commercial banks.
• D) $800 million, but only by $600 million if the securities are purchased directly from commercial banks.

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Definitions:

Hong Kong

A Special Administrative Region of China known for its vibrant economy, bustling port, and status as a global financial center.

Singapore

Singapore is a sovereign city-state and island country in Southeast Asia, known for its highly developed and diversified economy, strategic location, and strict regulations.

South Korea

A country in East Asia, located on the southern part of the Korean Peninsula, known for its advanced technology industry, vibrant culture, and strong economy.

Taiwan

An island in East Asia with a vibrant economy and democratic government, known for its technological advancements and rich cultural heritage.