The Banking System Currently Has $200 Billion of Reserves,none of Which

question 58

Multiple Choice

The banking system currently has $200 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 4%.If the Fed raises the reserve requirement to 5% and at the same time buys $50 billion dollars of bonds,then by how much does the money supply change?

• A)It rises by $1000 billion.
• B)It rises by $1250 billion.
• C)It falls by $950 billion.
• D)None of the above is correct.

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Definitions:

Marginal Revenue Product

measures the increase in revenue that results from the addition of one more unit of input while holding all other inputs constant.

Equilibrium

A state in a market where the quantity demanded by consumers equals the quantity supplied by producers, leading to a stable price.

MPs

Members of Parliament, elected officials who represent constituencies and have legislative responsibilities in the national government.

Purely Competitive Conditions

A market structure characterized by many buyers and sellers, where each seller offers an identical product, leading to price taken as given by individual sellers due to the market's competition.