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:

Hail

Frozen precipitation in the form of balls or irregular lumps of ice, often occurring during strong thunderstorms.

Monetary Compensation

Financial payment provided to an individual for services rendered, such as a salary, wages, or benefits.

Breach of Contract

Not meeting any provision of a contract, be it written or spoken, without an acceptable legal justification.

Principle of Mitigation

The legal obligation on a party suffering loss to take reasonable action to minimize the amount of the loss suffered.