Suppose a Bank Has Checkable Deposits of $100,000 and the Required

question 138

Multiple Choice

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent. If the bank currently has $100,000 in reserves, it could expand the money supply by as much as:

• A) $100,000.
• B) $400,000.
• C) $0.
• D) $20,000.
• E) $80,000.

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Definitions:

Market Supply

The total amount of a specific good or service that is available to consumers, determined by the sum of all individual suppliers' products in the market.

Long Run

A period sufficient for all inputs, including physical capital and labor, to be adjusted in the production process.

Industry Supply Curve

A graphical representation that shows the relationship between the price of a good and the total output of the industry over a period of time.

Marginal Cost Curves

Graphs that depict the cost of producing one additional unit of a good or service, typically showing how costs vary with production volume.