Suppose That the Federal Reserve Increases Bank Reserves and Banks

question 266

Multiple Choice

Suppose that the Federal Reserve increases bank reserves and banks lend out some of these reserves,but at some point banks still have $5 million more they wish to lend out.If the required reserve ratio is 10%,how much more money can banks create if they lend out the remaining amount?

• A)$55 million
• B)$50 million
• C)$45 million
• D)$40 million

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Definitions:

Own Interest

Refers to the personal gain or benefit that individuals or organizations seek in various activities or decisions.

Production Process

The Production Process involves the methods and sequences of activities used to transform inputs into finished goods or services.

Capital

Financial assets or physical resources that are used by businesses to produce goods and services and generate wealth.

Rich

Having a large amount of wealth or resources, enabling a higher standard of living and purchasing power.