During the Second Half of 2008, the Fed Approximately Doubled

question 32

Multiple Choice

During the second half of 2008, the Fed approximately doubled the reserves of the commercial banking system.  As a result, the M1 money supply

• A) fell sharply, because the banks used the excess reserves to extend additional loans.
• B) also approximately doubled.
• C) was unchanged, because bank reserves will not affect the M1 money supply.
• D) increased, but by a much smaller amount, because the banks used only a small portion of their excess reserves to extend additional loans.

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Definitions:

Capital Account Balance

The net result of public and private international investments flowing in and out of a country, representing changes in national ownership of assets.

Partnership Capital

Represents the total equity or interest that partners have in a partnership, which can be changed through additional contributions or withdrawals.

Admit May

A term that appears to refer to the acceptance or permission granted in the month of May, but without a specific context, its exact meaning may vary.

Goodwill Method

An accounting technique used to record the excess of purchase price over the book value of acquired assets during a business acquisition.