The Fed Can Set the Ratio of Legally Required Reserves

question 12

Multiple Choice

The Fed can set the ratio of legally required reserves between the limits of 8 and 14 percent on checkable deposits.Hence,the maximum multiple by which the banking system could theoretically expand a dollar of excess reserves would vary between

• A) 2 and 3.
• B) 5 and 6.
• C) 8 and 14.
• D) 12 and 7.
• E) 14 and 6.

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Definitions:

Hindsight Bias

The tendency to believe, after learning an outcome, that one would have foreseen it, often referred to as the "I-knew-it-all-along" phenomenon.

Overconfidence Bias

A cognitive bias which leads an individual to overestimate their knowledge, abilities, or control over situations.

Selection Bias

A type of bias caused by choosing non-random data for statistical analysis, which can cause the results to not be representative of the whole population.

Deductive Reasoning

A rational procedure in which an inference is derived from the harmony of multiple statements thought to be valid.