Suppose the Banking System Has $10 Million in Reserves, the Reserve

question 60

Multiple Choice

Suppose the banking system has $10 million in reserves, the reserve requirement is 20 percent, and there are no excess reserves. The public holds $10 million in cash. Then bankers decide that it is prudent to hold some excess reserves, and so begin to hold 25 percent of deposits in the form of reserves. Other things the same, what will this action cause the money supply to do?

• A)to change forms, but not size
• B)to fall by $10 million
• C)to fall by $5 million
• D)to fall by $0.5 million

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Definitions:

Semicircular Canals

Structures located in the inner ear that are critical for maintaining balance and spatial orientation by detecting rotational movements.

Vestibular Sacs

Structures within the inner ear involved in the sense of balance, helping to detect changes in the position of the head.

Inner Ear

The innermost part of the ear, containing the cochlea, vestibule, and semicircular canals, which is essential for hearing and balance.

Frequency Theory

A theory explaining the perception of pitch that asserts neurons fire at the same rate as the frequency of an auditory stimulus.