If a Bank Uses $80 of Excess Reserves to Make

question 174

Multiple Choice

If a bank uses $80 of excess reserves to make a new loan when the reserve ratio is 25 percent, what happens to the money supply?

• A)The money supply initially decreases by $80.
• B)The money supply initially increases by $20.
• C)The money supply will eventually increase by more than $20 but less than $80.
• D)The money supply will eventually increase by $320.

Interpret financial data to determine changes in market conditions or business strategies.

Calculate tax implications on purchases and understand tax rates.

Understand and apply discounts and markups in pricing strategies.

Calculate depreciation values and understand its impact on asset valuation.

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