If the Banking System Has $5 Million in Excess Reserves

question 216

Multiple Choice

If the banking system has $5 million in excess reserves and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

• A)$25 million
• B)$20 million
• C)$5 million
• D)$2.5 million

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Definitions:

Short-Run Decisions

Decisions made by businesses affecting operations within a period of less than one year, often focusing on immediate operational and financial outcomes.

Opportunity Costs

The potential benefits missed out on when choosing one alternative over another.

Fixed Overhead

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Special Offer

A promotional deal or discount aimed at encouraging consumers to buy a product or service.