In Macroland,there Is $1,000,000 in Currency That Can Either Be

question 111

Multiple Choice

In Macroland,there is $1,000,000 in currency that can either be held by the public or used by banks as reserves.If the banks' desired reserve-deposit ratio decreases from 10% to 5% and the public continues to hold the same amount of currency,the money supply in Macroland will

• A) increase.
• B) decrease.
• C) remain the same.
• D) either increase or decrease.
• E) increase initially,but then return to the original level.

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Definitions:

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from a country's central bank.

Actual Interest Rate

The actual rate of interest earned or paid on an investment or loan, considering compounding and other factors, as opposed to the nominal rate.

Non-Interest-Bearing Note

A type of debt instrument that does not pay interest to the holder, instead being issued at a discount to its redemption value.

Discount Rate

The interest rate used to discount future cash flows to their present value; often reflects the risk-free interest rate.