The Table Given Below Shows the Assets and Liabilities of the National

question 96

Multiple Choice

The table given below shows the assets and liabilities of the National Bank. Assume that this is the only bank in the economy.
Table 13.2
$\begin{array}{c}\text { Balance Sheet of National Bank }\\\quad\quad\quad\text { Assets } \quad\quad\quad\quad\quad\quad\quad\quad \text { Liabilities }\\\begin{array}{|c|c|c|c|}\hline\text { Vault Cash } & \$ 1,725 & \text { Deposits } & \$ 5,450 \\\text { Deposit in Fed } & \$ 425 & & \\\text { Loans } & \$ 3,300 & & \\\hline \text { Total Assets } & \$ 5,450 & \text { Total Liabilities } & \$ 5,450\\\hline\end{array}\end{array}$


-Refer to Table 13.2. If the Fed increased the reserve requirement from 10 percent to 25 percent, the money supply in the whole banking system could now potentially:

• A) decrease by $12,900.
• B) decrease by $1,272.50.
• C) increase by $7,875.
• D) decrease by $7,875.
• E) increase by $3,150.

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Definitions:

Steady State

A condition where the variables (such as temperature, pressure, and volume in a system) are unchanging over time.

Drive-Reduction Theory

A psychological concept suggesting that motivation arises from biological needs that push organisms to seek homeostasis through reducing drives stemming from those needs.

Tension

The physical or emotional strain caused by conflicting or demanding circumstances.

Stability

The condition of being resistant to change or variation, often used in psychological contexts to refer to emotional or mental consistency.