If the Central Bank of Macroland Puts an Additional 1,000

question 7

Multiple Choice

If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.20, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.

• A) $1,000; $1,000
• B) $4,000; $4,000
• C) $4,000; $5,000
• D) $1,000; $5,000

---

Definitions:

Journal Entry

A record in the accounting journal that consists of a debit and credit entry and describes a business transaction.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations, calculated by dividing current assets by current liabilities.

Working Capital

The gap between a firm's immediate assets and its short-term obligations, reflecting the funds available for daily operations.

Quick Ratio

A liquidity ratio that measures a company's ability to cover its short-term obligations with its most liquid assets.