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

question 29

Multiple Choice

If the Fed buys a $100,000 government security from a bank when the desired reserve ratio is 10 percent and the currency drain ratio is 50 percent,the bank can loan a maximum of

• A)$50,000.
• B)$40,000.
• C)$100,000.
• D)$90,000.
• E)$60,000.

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Definitions:

Overallocation

The process of distributing or assigning more resources or rights than are available, often leading to shortages or conflicts.

Underallocation

A situation in which resources are not distributed efficiently, often leading to a failure to meet demand for certain goods or services.

Farm Subsidies

Government aid provided to farmers to boost their income, regulate the production of farm products, and affect the price and availability of these commodities.

Agribusiness

The portion of the agricultural and food product industries that is dominated by large corporations.