If the Fed Buys a $100,000 Government Security from a Bank

question 242

Multiple Choice

If the Fed buys a $100,000 government security from a bank when the desired reserve ratio is 20 percent and the currency drain ratio is 5 percent,the bank can loan a maximum of

• A)$75,000.
• B)$80,000.
• C)$100,000.
• D)$95,000.
• E)$85,000.

---

Definitions:

Bedrock

The solid rock layer beneath surface soils or sediments, forming the foundation for geological structures.

Accompanying Figure

A visual representation such as a chart, graph, or image that is provided to support or illustrate textual information.

Bridge

A structure built to span a physical obstacle, such as a body of water, valley, or road, without blocking the way underneath.

Base Level

The lowest point to which erosion by running water can occur, often the level at which a river meets the sea or lake.