If All Banks Are Subject to a Uniform 20% Reserve

question 103

Multiple Choice

If all banks are subject to a uniform 20% reserve requirement and demand deposits are the only form of money,a $1,000 open market purchase by the Fed would cause the money supply to

• A)increase by $1,000.
• B)decrease by $1,000.
• C)decrease by $5,000.
• D)increase by $5,000.

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Definitions:

Gross Profit

The financial gain obtained after subtracting the cost of goods sold from total sales revenue.

Ratio

A quantitative relationship between two numbers, often used in financial analysis to assess performance, financial health, and operational efficiency.

Income Statement

A financial report that shows a company's revenues and expenses over a specified period of time, resulting in net profit or loss.

Vertical Analysis

A technique in analyzing financial statements, where each item in the primary categories of assets, liabilities, and equity on a balance sheet is expressed as a ratio of the overall category total.