Suppose a Bank Has $100,000 in Chequing Account Deposits with No

question 250

Multiple Choice

Suppose a bank has $100,000 in chequing account deposits with no excess reserves and the desired reserve ratio is 5 percent.If commercial banks lower the desired reserve ratio to 3 percent, then the bank will now have excess reserves of

• A)$0.
• B)$2,000.
• C)$3,000.
• D)$5,000.
• E)$20,000.

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Definitions:

Rate of Inflation

The annual percentage rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan remaining.

Intertemporal Arbitrage

The action of taking advantage of price differences of the same asset in different time periods to generate profits.

Oil

A viscous liquid derived from petroleum, natural gas, or plants, used as fuel or as a base for lubricants and various manufacturing processes.