In the Simple Deposit Expansion Model,a Decline in Checkable Deposits

question 125

Multiple Choice

In the simple deposit expansion model,a decline in checkable deposits of $500 when the required reserve ratio is equal to 20 percent implies that the Fed

• A)sold $250 in government bonds.
• B)sold $100 in government bonds.
• C)sold $50 in government bonds.
• D)purchased $100 in government bonds.

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Definitions:

Principal

The original sum of money borrowed in a loan, or the initial amount of investment, excluding interest or profit.

Ordinary Simple Interest

Interest calculated on the principal amount only, without compounding, over a specific period.

360-Day Year

An accounting convention used for interest calculations where the year is simplified to 360 days to ease the computation process.

Exact Simple Interest

Interest calculated on the principal amount of a loan or investment, considering the exact number of days in the interest period.