Assume That Banks Do Not Hold Excess Reserves

question 120

Multiple Choice

Assume that banks do not hold excess reserves. The banking system has $20 million in reserves and has a reserve requirement of 20 percent. The public holds $10 million in currency. Then the public decides to withdraw $5 million in currency from the banking system. If the Bank of Canada wants to keep the money supply stable by changing the reserve requirement, then what will the new reserve requirement be?

• A)20 percent
• B)18.2 percent
• C)15.8 percent
• D)15 percent

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Definitions:

Overuse

Utilization of a resource or service to an extent that exceeds its sustainable capacity.

Nonrival

A property of certain goods where one person's consumption does not diminish the availability of the good for others.

Excludable

A property of a good or service wherein it is possible to prevent people who have not paid for it from having access to it.

Social Goods

Goods that benefit all members of society and whose consumption does not reduce their availability to others.