Suppose That the Fed Undertakes an Open Market Sale,selling $1

question 102

Multiple Choice

Suppose that the Fed undertakes an open market sale,selling $1 million worth of securities to a bank.If the required reserve ratio is 8%,checkable deposits (or the money supply) ,would _______________ by ________________ million,assuming that there are no cash leakages and that banks hold zero excess reserves.

• A) rise; $12.5
• B) decline; $8
• C) decline; $12.5
• D) rise; $8

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Definitions:

Net Credit Sales

The total revenue from sales made on credit, minus any returns or allowances.

Times Interest Earned

Times interest earned, a financial metric, measures a company's ability to meet its interest payments on outstanding debt with its before-tax income.

Income before Income Taxes

Income before income taxes is a financial measure that represents a company's earnings before tax expenses have been deducted.

Interest Expense

The cost incurred by an entity for borrowed funds, reflected as a charge on the income statement.