The Banking System Has $20 Million in Reserves and Has

question 9

Multiple Choice

The banking system has $20 million in reserves and has a reserve requirement of 20 percent. The public holds $20 million in currency. 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. At the same time, the public decides to deposit $6.7 million in currency into the banking system. Other things equal, what must the Bank of Canada do to bank reserves to keep the money supply the same?

• A)reduce reserves by $6.7 million
• B)reduce reserves by $5 million
• C)increase reserves by $3 million
• D)No action by the Bank of Canada is necessary.

---

Definitions:

Dimensions of Leadership

The various aspects or attributes that characterize effective leadership, including personal qualities, interpersonal skills, and strategic abilities.

Leader Behavior Description Questionnaire

A tool used in organizational studies to assess the behavior of leaders by categorizing it into specific dimensions, such as task-oriented and people-oriented behaviors.

Autocratic

A leadership or governing style marked by individual control over all decisions with little input from group members.

Behavior

One’s bearing, demeanor, and conduct. Behavior theory in leadership focuses on leadership style, such as autocratic, democratic, and laissez-faire, as well as leadership dimensions, such as initiating structure and showing consideration.