Suppose the Required Reserve Ratio Is 8% and the Fed

question 60

Multiple Choice

Suppose the required reserve ratio is 8% and the Fed purchases $100 million worth of Treasury bills from Wells Fargo.By how much is Wells Fargo able to increase its loans?

• A) $8 million
• B) $92 million
• C) $100 million
• D) $1.25 billion

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Definitions:

Common Stock

Shares representing ownership in a company, providing voting rights and potential dividends, but with a lower claim on assets than preferred shares.

Short-term Speculation

Engaging in financial transactions with the expectation of achieving significant gains within a short time frame, often involving high risk.

Market Value

The price at which an asset would trade in a competitive auction setting.

Equity Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, by reporting these profits proportionate to their stake.