Assuming a Required Reserve Ratio of 10% and the Fed

question 63

Multiple Choice

Assuming a required reserve ratio of 10% and the Fed purchased $1 million worth of mortgage-backed securities, make use of the simple deposit multiplier to determine how much checking deposits would change.

• A)increase by $1 million
• B)increase by $10 million
• C)decrease by $1 million
• D)decrease by $10 million

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Definitions:

Bankruptcy

A legal proceeding involving a person or business that is unable to repay outstanding debts.

Financial Affairs

The management and analysis of money, investments, and other financial instruments by individuals or entities.

Pledged Assets

Assets that are promised as security for the repayment of a loan.

Monetary

Relating to money or currency, particularly in terms of monetary policy or monetary economics.