The Fed Changes Reserve Requirements from 10 Percent to 7

question 41

Multiple Choice

The Fed changes reserve requirements from 10 percent to 7 percent,thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be

• A)$3,000 million.
• B)$15,625 million.
• C)$12,857 million.
• D)$3,795 million.
• E)none of the options.

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Definitions:

Cash Equivalents

Short-term, highly liquid investments that can be quickly converted into a known amount of cash, typically with original maturities of three months or less.

Marketable Securities

Financial instruments that can be easily converted into cash, typically with short maturities and high liquidity.

Investing Activities

Transactions involving the purchase and sale of long-term assets and other investments not considered to be cash equivalents.

Net Cash

The amount of cash remaining after all cash inflows and outflows have been accounted for over a specific period.