If the Fed Injects Reserves into the Banking System and They

question 35

Multiple Choice

If the Fed injects reserves into the banking system and they are held as excess reserves,then the money supply

• A)increases by only the initial increase in reserves.
• B)increases by only one-half the initial increase in reserves.
• C)increases by a multiple of the initial increase in reserves.
• D)does not change.

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Definitions:

Work-in-progress

Refers to the materials and goods that are in the process of being manufactured but are not yet completed.

Raw Materials

The unprocessed or minimally processed materials required to manufacture goods, often natural resources like wood, ores, and oil.

Finished Goods

Products that have completed the manufacturing process and are ready to be sold.

Optimal Amount of Credit

The ideal volume of credit a business can extend to customers that maximizes net profitability while minimizing credit risk.