Assume All Banks in the System Started Have a 10

question 89

Multiple Choice

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase. The result would be a(n) :

• A) $200,000 expansion of the money supply.
• B) $20,000 expansion of the money supply.
• C) $20,000 contraction of the money supply.
• D) infinite contraction of the money supply.

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Definitions:

Ineffective

Not producing the desired outcome or failing to achieve the intended result.

Aversive Qualities

Characteristics of a stimulus that are unpleasant or uncomfortable, which can lead to avoidance behavior.

Negative Contrast Effects

Negative contrast effects occur when a lesser stimulus reduces the response strength or preference for the more favorable stimulus that was previously established.