A Bank Has Excess Reserves of $1,000,000 and Makes a New

question 74

Multiple Choice

A bank has excess reserves of $1,000,000 and makes a new loan for $500,000.If the bank faces a 10% required reserve ratio,by how much will the money supply increase when the loan is made?

• A) There will be no change to the money supply.
• B) $50,000
• C) $5,000,000
• D) $1,500,000
• E) $2,000,000

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Definitions:

Wage Rates

The amount of money paid to an employee by an employer for a unit of time worked or for a certain amount of work completed.

Labor Demand

Denotes the quantity of labor that employers are willing to hire at a given wage rate in a given time period.

Perfectly Elastic

Describes a situation where the quantity demanded or supplied changes by an infinite amount in response to any change in price; most common in theoretical models.

Total Costs

The total amount of expenses a business has for producing goods or services, encompassing both constant and fluctuating costs.