The Banking System Currently Has $50 Billion of Reserves,none of Which

question 111

Multiple Choice

The banking system currently has $50 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 raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds,then by how much does the money supply change?

• A)It falls by $20 billion.
• B)It falls by $110 billion.
• C)It falls by $180 billion.
• D)None of the above is correct.

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Definitions:

W-2 Income

Earnings reported through a Form W-2, showing the total income and taxes withheld from an employee's paycheck by their employer.

Impute Interest

The process of assigning an implied interest rate to an interest-free or below-market interest loan, which then becomes taxable under the Internal Revenue Code.

Deferred Payment

An arrangement that allows payment to be made at a later date, often used in installment purchases or loans.

Group-Term Life Insurance

A type of life insurance where coverage is provided to a group of people by an employer or association, often at a lower cost than individual policies.