How Much Can the Banking System Increase Deposits, Given a Required

question 16

Multiple Choice

How much can the banking system increase deposits, given a required reserve ratio of 10 percent, an initial injection of $1,000 worth of reserves, and no excess reserve or currency drain?

• A)$1,000
• B)$5,000
• C)$10,000
• D)$20,000

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Definitions:

Long Run

A period during which all inputs, including capital and labor, can be adjusted by firms. It is characterized by the flexibility of adjusting to conditions without any fixed constraints.

Average Costs

It's the cost associated with producing each unit, found by dividing the entire production expenses by the number of units produced.

Returns to Scale

The rate at which output increases as inputs are increased proportionally, indicating how efficiently larger production scales affect production volume.

Diseconomies of Scale

The phenomenon where production costs per unit increase as a firm or operation grows in scale, opposite of economies of scale.