Suppose First National Bank Has Zero Excess Reserves

question 112

Multiple Choice

Suppose First National Bank has zero excess reserves.If the required reserve ratio increases,which of the following will happen immediately?

• A) Bank assets will decrease.
• B) The bank will not have enough required reserves.
• C) The money multiplier will increase.
• D) Total reserves will increase.

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Definitions:

Annual Income

The total amount of income earned over a year from all sources including wages, salaries, bonuses, dividends, and interest.

Nominal Interest Rate

The rate of interest charged on a loan without taking the inflation rate into account.

Real Interest Rate

It represents the rate of interest an investor expects to receive after allowing for inflation, fundamentally indicating the true return on an investment.

Inflation Rate

The annual rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to limit inflation to maintain a healthy economy.