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

question 1

Multiple Choice

Suppose that, for every 1-percentage-point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to
4) 25 percent, bank reserves will

• A) increase by $0.5 billion and the money supply will increase by $2.5 billion.
• B) decline by $0.5 billion and the money supply will decline by $2.5 billion.
• C) increase by $0.75 billion and the money supply will increase by $3.75 billion.
• D) increase by $1 billion and the money supply will increase by $5 billion.

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Definitions:

Non-breaching Party

In a contractual agreement, the party that has not failed to fulfill their contractual obligations and has been wronged by the other party's breach.

Reasonable

The term 'reasonable' is used to describe actions or decisions that are logical, fair, and sensible, based on the circumstances.

UCC Rule

Refers to regulations established under the Uniform Commercial Code, a comprehensive set of laws governing all commercial transactions in the United States.

Payment Term

A condition that outlines the agreement between a buyer and a seller regarding the amount and timing of payments for goods or services.