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.

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Definitions:

Flu Symptoms

Symptoms indicating influenza, including fever, cough, sore throat, body aches, headaches, and fatigue.

High Fever

A body temperature significantly above the normal range, often indicating an underlying condition or infection.

Body Aches

General discomfort or pain in the muscles, joints, or throughout the body, often due to exercise, illness, or stress.

Chills

A feeling of coldness accompanied by shivering, often associated with fever or a sudden drop in temperature.