Suppose the Reserve Ratio Is 10 Percent and Banks Do

question 25

Multiple Choice

Suppose the reserve ratio is 10 percent and banks do not hold excess reserves.Under these circumstances,suppose the Bank of Canada sells $60 million of bonds to the public.Which statement best describes the effects of this open-market operation?

• A) Bank reserves increase by $60 million,and the money supply eventually increases by $600 million.
• B) Bank reserves increase by $60 million,and the money supply eventually increases by $800 million.
• C) Bank reserves decrease by $60 million,and the money supply eventually decreases by $600 million.
• D) Bank reserves decrease by $60 million,and the money supply eventually decreases by $800 million.

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Definitions:

Sales Data

Comprehensive information regarding the sales of products or services within a specific period.

Preceding Year

Refers to the year that immediately comes before the current year in context.

Common-sized Balance Sheet

A balance sheet where each line item is expressed as a percentage of total assets, facilitating comparison across companies and time periods.

Trend Balance Sheet

A financial statement that shows the changing balances of each account over a series of periods, helping in analyzing trends over time.