Suppose the Reserve Ratio Is 10 Percent, and Banks Do

question 114

Multiple Choice

Suppose the reserve ratio is 10 percent, and banks do not hold excess reserves. Suppose the Bank of Canada sells $10 million of bonds to the public. Which of the following best describes the effects of this open market operation?

• A)Bank reserves increase by $1 million, and the money supply eventually increases by $10 million.
• B)Bank reserves increase by $10 million, and the money supply eventually increases by $100 million.
• C)Bank reserves decrease by $1 million, and the money supply eventually increases by $10 million.
• D)Bank reserves decrease by $10 million, and the money supply eventually decreases by $100 million.

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Definitions:

Beneficiary

A legal term referring to an individual or entity entitled to receive benefits or assets under the terms and provisions of a will, trust, insurance policy, or other contract.

Ownership Interest

A person's or entity's legal rights and claims to an asset, reflecting the degree of ownership and entitlement to the benefits that come with the asset.

Property Insurance Policy

A policy that provides financial reimbursement to the owner or renter of a structure and its contents in case of damage or theft.

Covered Peril

Refers to a specific risk or cause of loss protected against in an insurance policy.