The Fed Provides Reserves to Banks and Also Requires Banks $\frac { 1 } { \text { required reserv e ratio } }$

question 46

Multiple Choice

The Fed provides reserves to banks and also requires banks to hold, as reserves, a portion of the deposits that the public holds at the banks. The banks, playing their key role in the money multiplier, lend the remainder of the deposits (or most of it) to borrowers at an interest rate that exceeds that of demand deposits. For any one bank, the remainder equals deposits less required reserves, which can be expressed as deposits times ________.

• A) (1 - \(\frac { 1 } { \text { required reserv e ratio } }\) ).
• B) (1 - required reserve ratio).
• C) (1 × required reserve ratio).
• D) \(\frac { 1 } { \text { required reserv e ratio } }\) .

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Definitions:

Marginal Revenue

The additional income generated from selling one more unit of a product or service.

Marginal Cost

The price of making one more unit of a certain product.

Government Regulation

Rules or directives made and maintained by a government to regulate behavior or enforce standards in various fields.

Centrally Planned Economies

Economic systems in which the government or a central body makes all decisions about the production and distribution of goods and services.