Answer the Question on the Basis of the Following Consolidated

question 31

Multiple Choice

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 10 percent.All figures are in billions and each question should be answered independently of changes specified in any preceding ones. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 60 \\140 \\260 \\400 \end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$600\\260\\\\\\\end{array}\end{array}$

Refer to the given data.Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy.Assuming that the money multiplier is operating to full effect,to accomplish the desired increase,the Fed could:

• A) sell $20 billion of U.S.securities to the banks.
• B) buy $20 billion of U.S.securities from the banks.
• C) sell $40 billion of U.S.securities to the banks.
• D) buy $40 billion of U.S.securities from the banks.

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Definitions:

Deferral Method

An accounting technique that postpones the recognition of income or expenses until a future date.

Revenue Level

The total amount of income generated from the sale of goods or services before any costs or expenses are deducted.

GAAP

The Generally Accepted Accounting Principles represent the framework and specific rules for financial accounting and reporting in the United States, promoting consistency and clarity.

Endowment Fund

A fund established by a donation, where the principal is kept intact and only the investment income is used for the fund's purposes.