On a Certain Date, the Banking System Had $40 Billion

question 5

Multiple Choice

On a certain date, the banking system had $40 billion in excess reserves. The legally required reserve ratio was 20 percent. Potentially, if these funds were loaned and eventually the entire amount re-deposited with a bank, the banking system as a whole could increase the money supply by

• A) a maximum of $40 billion.
• B) a maximum of $160 billion.
• C) a maximum of $200 billion.
• D) more than $200 billion.

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Definitions:

Moderately Strong Association

A statistical term indicating a reasonably strong relationship between two variables, showing noticeable correlation but not absolute prediction.

Little or No Association

A term used in statistics to describe a situation where there is very weak or no relationship between two variables being studied.

Very Strong Association

A term in statistics indicating a high level of correlation between two variables.

Linear Association

A relationship between two variables where the change in one variable is proportionally related to a change in the other variable.