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:

Thickness

The measurement of how thick an object is, usually referenced in contexts varying from material properties to medical conditions like the thickness of a blood vessel wall.

Excessive Breathing

Breathing at an abnormally rapid rate, leading to decreased levels of carbon dioxide in the blood.

Hyperpnea

Increased depth and rate of breathing, usually in response to physical activity or a specific physiological demand.

Cricoid Cartilage

A ring-shaped cartilage found at the base of the larynx (voice box) and is important for maintaining an open airway.