The Banking System Has $20 Million in Reserves and Has

question 16

Multiple Choice

The banking system has $20 million in reserves and has a reserve requirement of 20 percent. Bankers previously did not hold any excess reserves, but difficult economic times make them decide that it is prudent to hold 25 percent of deposits as reserves. Other things equal, by how much must the Bank of Canada increase bank reserves to keep the money supply the same?

• A)$4 million
• B)$5 million
• C)$20 million
• D)No action by the Bank of Canada is necessary.

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Definitions:

1-Pentanamine

An organic compound, specifically an amine, with a five-carbon chain and an amino group at the first carbon.

But-1-Ene

A hydrocarbon with a formula of C4H8, featuring a double bond between the first and second carbon atoms.

Gabriel Synthesis

A method for synthesizing primary amines through the reaction of potassium phthalimide with an alkyl halide, followed by hydrolysis.

S-3-Methyloctan-1-Amine

A chemical compound with the structure derived from octane by replacing one hydrogen atom with a methyl group and one with an amino group.