Suppose the Banking System Has No Excess Reserves and Required

question 1

Multiple Choice

Suppose the banking system has no excess reserves and required reserves equal to 20 percent of checkable deposits.If the Fed sells $10,000 in securities to Joe Bankustomer,what is the most that checkable deposits in the banking system fall? (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)

• A)$2,000
• B)$10,000
• C)$20,000
• D)$50,000
• E)$500,000

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Definitions:

Acid-Test Ratio

A stringent indicator of a company's liquidity, calculating if it can meet its short-term obligations with its most liquid assets, excluding inventory.

Accounts Receivable

Accounts Receivable is the money owed to a company by its customers for goods or services that have been delivered but not yet paid for.

Accounts Payable

Liabilities or money owed by a business to its suppliers or creditors for goods or services received.

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings.