Suppose a Sunken Ship Containing $1000 in Currency Is Dredged

question 17

Multiple Choice

Suppose a sunken ship containing $1000 in currency is dredged out of Lake Erie. The currency is still legal tender,but interest rates are high so no one wants to hold onto the currency; the owners therefore deposit it in a bank. If the reserve requirement is 20% and the banks hold no excess reserves,the eventual result will be

• A) the money supply decreases by $200
• B) the money supply increases by $1000
• C) the money supply increases by $2000
• D) the money supply increases by $5000
• E) the money supply remains unchanged

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Definitions:

Ounce

A unit of weight used in the British, United States, and other Imperial systems, equivalent to one-sixteenth of a pound.

Pineapple

A tropical fruit with a rough, spiky outer skin, sweet firm interior, and a tuft of stiff leaves on top.

Tip Rate

The tip rate is the percentage of the total bill amount given as extra money (tip) for services, typically in the hospitality industry.

Markup Rate

The percentage increase in price applied to the cost price of a product to determine its selling price.