If the Fed Increases the Required Reserve Ratio at a Time

question 40

Multiple Choice

If the Fed increases the required reserve ratio at a time when banks are holding excess reserves, then _____

• A) the Fed's aim is to increase the money supply.
• B) banks are likely to lend out more money than they would if the Fed left the reserve ratio alone.
• C) banks are likely to earn higher profits than they would if the Fed left the reserve ratio alone.
• D) the money supply will not increase as much as it would if the Fed left the reserve ratio alone.
• E) the Fed's aim is to conduct open market operations without changing the money supply.

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Definitions:

Real Property

Land and anything permanently attached to the land, like buildings, is considered real property.

Capital Asset

A Capital Asset is a significant piece of property such as investments, real estate, and personal items that is not easily sold in the regular course of a business's operations.

Section 1231

A tax term relating to the classification of property that includes depreciable property and real property (e.g., buildings and equipment) used in a trade or business and held for more than one year. gains from the sale of Section 1231 property can be taxed at more favorable capital gains rates rather than ordinary income rates.

Ordinary Loss

A loss resulting from regular business operations that is fully deductible against ordinary income on a taxpayer's tax return.