Assume a Simplified Banking System Subject to a 25 Percent

question 226

Multiple Choice

Assume a simplified banking system subject to a 25 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 $400,000.
• C) increases $125,000.
• D) decreases $500,000.

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Definitions:

Employer-Worker Relationship

The professional and legal dynamics between employers and their employees, encompassing aspects of rights, duties, and workplace culture.

Principal

The original sum of money borrowed in a loan, or the initial amount of investment, excluding any interest or profits.

Agent

In economics, an agent is an individual or entity that makes decisions, often in the context of trading or negotiating, on behalf of another person or group.

Informational Asymmetry

A situation where one party in a transaction has more or superior information compared to another. This often leads to an imbalance in power or decision-making.