If the Reserve Ratio Is 5 Percent, Then $1,000 of Additional

question 189

Multiple Choice

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

• A)$200 of new money.
• B)$2,000 of new money.
• C)$20,000 of new money.
• D)None of the above is correct.

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Definitions:

Compounded Monthly

Interest calculated on the initial principal and also on the accumulated interest of previous periods, with the process happening every month.

Compounded Semi-annually

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods, applied twice a year.

Equivalent Cash

A term typically used to describe a sum of money that has the same value as another form of financial instrument or asset.

Compounded Semi-annually

Involves the calculation and addition of interest to the principal sum twice per year.