If Banks Are Fully Loaned Up, Have No Excess Reserves

question 72

Multiple Choice

If banks are fully loaned up, have no excess reserves, and the required reserve ratio is raised, the amount that banks can lend is:

• A) reduced and the money supply contracts.
• B) reduced and the money supply expands.
• C) reduced and there is no change in the money supply.
• D) increased and the money supply expands.
• E) increased and the money supply contracts.

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Definitions:

Solvency

The ability of a company to meet its long-term financial commitments and continue operations in the long-term, often assessed through ratios comparing assets to liabilities.

Profitability

measures how much profit or financial gain is generated as a percentage of the revenue of a company or business segment.

Liquidity

The simplicity of transforming an asset into cash without influencing its market value.

Statement of Cash Flows

A financial report that shows how changes in the balance sheet and income affect cash and cash equivalents, and breaks down financing, investing, and operating activities.