During the Second Half of 2008, the Fed Approximately Doubled

question 32

Multiple Choice

During the second half of 2008, the Fed approximately doubled the reserves of the commercial banking system.  As a result, the M1 money supply

• A) fell sharply, because the banks used the excess reserves to extend additional loans.
• B) also approximately doubled.
• C) was unchanged, because bank reserves will not affect the M1 money supply.
• D) increased, but by a much smaller amount, because the banks used only a small portion of their excess reserves to extend additional loans.

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Definitions:

Equilibrium Output

The level of production in a market where the quantity supplied equals the quantity demanded, leading to a state of balance without excess supply or demand.

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Recurrent Attacks

Episodes that occur repeatedly over time, often referring to medical conditions such as seizures or migraines.

Exaggerated Sensitivity

An increased and often disproportionate emotional response to external stimuli.