Assume That the Reserve Requirement Ratio Is 12 Percent and That

question 7

Multiple Choice

Assume that the reserve requirement ratio is 12 percent and that the Fed uses open market operations by buying $200 million worth of Treasury securities. Assuming that banks use all funds except required reserves to make loans and that the public does not store any cash, the money supply should ____ by about ____.

• A)increase; $200 million
• B)increase; $1.67 billion
• C)decrease; $200 million
• D)decrease; $1.67 billion

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Definitions:

Constitutional Amendment

A modification or change to the Constitution, requiring a specific process of approval, such as a supermajority vote.

26th Amendment

An amendment to the U.S. Constitution that lowered the voting age from 21 to 18 years, ratified in 1971.

Bill of Rights

A fundamental document or part of a constitution that outlines the rights and freedoms guaranteed to the citizens of a country.

Constitutional Amendment

A formal change or addition proposed or made to a constitution, requiring a specific procedure for adoption that is more rigorous than for ordinary legislation.