The Banking System Currently Has $100 Billion of Reserves, None

question 36

Multiple Choice

The banking system currently has $100 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed lowers the reserve requirement to 8 percent and at the same time buys $10 billion worth of bonds, then by how much does the money supply change?

• A)It rises by $225 billion.
• B)It rises by $375 billion.
• C)It rises by $675 billion.
• D)None of the above is correct.

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Definitions:

Average Tax Rate

The proportion of the total tax paid to the total taxable income, calculated by dividing the total tax amount by the taxable income.

Marginal Tax Rate

The percentage of tax applied to your income for each tax bracket in which you qualify, essentially the rate at which your last dollar of income is taxed.

Taxable Income

Taxable income is the amount of an individual's or business's income used to calculate how much tax they owe to the government in a given tax year, after all deductions and exemptions.

Tax Cutters

Advocates or policies aimed at reducing the level of taxation.