Assume We Have a Simplified Banking System in Balance-Sheet Equilibrium

question 24

Multiple Choice

Assume we have a simplified banking system in balance-sheet equilibrium. Also assume that all banks are subject to a uniform 10 percent reserve requirement and demand deposits are the only form of money. A commercial bank receiving a new demand deposit of $100 would be able to extend new loans in the amount of:

• A) $10.
• B) $90.
• C) $100.
• D) $1,000.

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Definitions:

Tariff

A tax imposed by a government on goods and services imported from other countries to increase their price and encourage or protect domestic industry.

Imported Oil

Oil that is bought from foreign countries to meet domestic consumption demands.

Tariff Revenue

Income earned by a government from imposing taxes on imported goods.

Imported Oil

Oil that is bought from other countries for use, reflecting dependency on foreign sources for energy supply.