If Each Bank in the United States Had to Keep

question 130

Multiple Choice

If each bank in the United States had to keep 100 percent of checkable deposits as reserves,each $1 the Fed injected into new reserves could increase the money supply by:

• A)$1.
• B)$2.
• C)$100.
• D)$5.
• E)a penny.

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Definitions:

Treasury Bill

A short-term government security issued at a discount from the face value and yielding the face value upon maturity.

Market Rate

The prevailing interest rate available in the marketplace for securities or loans, dictated by supply and demand forces.

Simple Interest

Interest earned or paid only on the original principal amount invested or loaned.

Prime Rate

The interest rate that commercial banks charge their most creditworthy customers, usually large corporations.