The Banking System Currently Has $10 Billion of Reserves, None

question 197

Multiple Choice

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 20 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?

• A)It falls by $45 billion.
• B)It falls by $52 billion.
• C)It falls by $55 billion.
• D)None of the above is correct.

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Definitions:

Units Produced

The total number of completed products that come out of a manufacturing process during a specific period.

Contribution Format Income Statement

An income statement layout that separates variable costs from fixed costs, showing the contribution margin and highlighting how sales revenue covers variable costs and fixed costs to determine net income.

Break-even Point

This refers to the level of production or sales volume at which total revenues match total expenses, resulting in no net profit or loss.

Net Operating Income

A financial metric indicating the profitability of a business's core operations, calculated by subtracting operating expenses from gross income.