If Bankers Decide to Keep a Lower Fraction of Deposits

question 25

Multiple Choice

If bankers decide to keep a lower fraction of deposits on reserve, the money supply will

• A)decrease.
• B)increase.
• C)remain unchanged.
• D)move more quickly through the economy.

---

Definitions:

Par-Value

The face value of a bond or stock as stated by the issuer, which is typically the amount repaid at maturity for bonds.

Modified Duration

A formula used to determine the sensitivity of a bond's price to a 1% change in interest rates, indicating the percentage change in price for each percentage point change in yields.

Market Yield

The current annual income returned on an investment, measured as a percentage of the investment's market price.