Suppose a Chartered Banking System Has $100,000 of Outstanding Demand

question 191

Multiple Choice

Suppose a chartered banking system has $100,000 of outstanding demand deposits and actual cash reserves of $35,000.If the desired reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of:

• A)$122,000
• B)$175,000
• C)$300,000
• D)$75,000

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Definitions:

Interest Rate

Interest Rate is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Credit Cards

Financial instruments issued by banks that allow holders to borrow funds at the point of sale, intended for short-term financing with the obligation of paying back the borrowed amount plus interest.

M1

A category of the money supply that includes all physical money like coins and currency, as well as demand deposits, checking accounts, and negotiable instruments.

Debt

is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor.