Scenario 21-1. The Monetary Policy of Namdian Is Determined by the Namdian

question 414

Multiple Choice

Scenario 21-1.
The monetary policy of Namdian is determined by the Namdian Central Bank.The local currency is the dia.Namdian banks collectively hold 100 million dias of required reserves,25 million dias of excess reserves,250 million dias of Namdian Treasury Bonds,and their customers hold 1,000 million dias of deposits.Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 21-1 .Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks.Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same.By how much would the money supply of Namdia change?

• A) 200 million dias
• B) 150 million dias
• C) 100 million dias
• D) None of the above is correct.

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Definitions:

Commodity

Commodity denotes basic goods used in commerce that are interchangeable with other goods of the same type.

Allocation

The process of distributing resources, goods, or services in a particular way or to particular recipients.

Scarce Resources

Resources that are limited in supply and cannot fulfill all the uses and demands placed on them.

Virtually Unlimited

A term used to describe a resource or supply that is so abundant it appears to be almost without limit.