Suppose That the Required Reserve Ratio Is 0

question 216

Multiple Choice

Suppose that the required reserve ratio is 0.2,and the Fed buys $5,000 of U.S.government securities from Bank A,which lends $4,000 and keeps $1,000 in its vault in cash.In this round of the money-creation process,the money supply,as measured by M1,has increased by

• A)$1,000
• B)$4,000
• C)$5,000
• D)$10,000
• E)$3,000

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Definitions:

Hiking Boots

Footwear designed specifically for protecting the feet and ankles during outdoor walking activities such as hiking.

Net Exports

The value of a country's total exports minus its total imports, representing the net trade of goods and services with foreign countries over a specific time period.

Net Capital Outflow

The difference between the domestic country's total purchase of foreign assets and foreign purchases of the domestic country's assets over a specific period of time.

Currency Depreciate

A decline in the value of one currency relative to another currency, which can affect international trade and economic balance.