A Lowering of the Required Reserve Ratio Might Not Expand

question 8

Multiple Choice

A lowering of the required reserve ratio might not expand the money supply if:

• A) tax rates are also lowered at the same time.
• B) tax rates are increased at the same time.
• C) borrowers are unwilling to borrow the new funds the banks have available for loans.
• D) borrowers are willing to borrow the new funds the banks have available for loans..

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Definitions:

Forward Interest Rate

An interest rate agreed upon today for a loan that will begin at a future date, used to hedge against interest rate fluctuations.

Zero-coupon Bond

A bond that does not pay periodic interest, but is sold at a deep discount from its face value and redeemed at full value at maturity.

Rate of Return

The returns or setbacks realized from an investment over a certain time period, expressed as a percentage of the initial capital invested.

Yield to Maturity

The total return anticipated on a bond if the bond is held until it matures, factoring in all interest payments made over time.