In a Fractional-Reserve Banking System with No Excess Reserves and No

question 19

Multiple Choice

In a fractional-reserve banking system with no excess reserves and no currency holdings,if the central bank buys $100 million of bonds,

• A) reserves and the money supply increase by less than $100 million.
• B) reserves increase by $100 million and the money supply increases by $100 million.
• C) reserves increase by $100 million and the money supply increases by more than $100 million.
• D) both reserves and the money supply increase by more than $100 million.

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Definitions:

Beta Coefficient

An index of a stock's fluctuation compared to the broader market, signifying its comparative risk.

Negative Beta

A measure indicating that an investment's returns are expected to move in the opposite direction of the overall market returns.

Treasury Bills

Short-term government securities with maturity periods typically less than one year, considered low-risk investments.

Long Bonds

Bonds with maturities typically longer than 10 years, often used to lock in interest rates.