Assume That Banks Do Not Hold Excess Reserves

question 6

Multiple Choice

Assume that banks do not hold excess reserves. The banking system has $50 million in reserves and has a reserve requirement of 10 percent. The public holds $20 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)10 percent
• B)9.1 percent
• C)9 percent
• D)8.1 percent

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Definitions:

Transmission Tailshaft

The rear section of a vehicle's transmission, connecting to the driveshaft, that transfers power from the transmission to the wheels.

Mating Gear

Refers to a gear that engages with another gear to transmit force and motion in mechanical systems.

Climbing

A gear problem caused by excessive wear in intermeshing gears or bearings. Climbing occurs when intermeshing gears move apart sufficiently for one gear to climb over the apex of its mate.

Zero Lash

The condition or adjustment in a mechanical system where there is no slack or play between the parts, resulting in precise and immediate response to input.