Assume a Simplified Banking System Subject to a 20 Percent

question 101

Multiple Choice

Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:

• A) increases $100,000.
• B) increases $500,000.
• C) increases $600,000.
• D) decreases $500,000.

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Definitions:

Cognitive Dissonance

The mental discomfort experienced by a person who holds two or more contradictory beliefs, ideas, or values at the same time.

Primacy Effect

A cognitive bias that results in a person recalling or valuing the first pieces of information encountered more than information presented later.

Social Psychology

The scientific study of how individuals think, feel, and behave in social contexts and how they are influenced by others.

Interpersonal

Relating to interactions and relationships between people.