Suppose the Federal Reserve Increases Deposits at Financial Institutions by $50

question 16

Multiple Choice

Suppose the Federal Reserve increases deposits at financial institutions by $50 billion through its open market operations.If the reserve requirement for all deposits is 8%,what is the maximum impact the Fed's actions can have on total deposits?

• A) $575 billion increase
• B) $54.3 billion increase
• C) $625 billion increase
• D) An increase greater than $1 trillion
• E) Total deposits would decrease,but there is not enough information to compute the amount.

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Definitions:

Sodium Salts

Compounds formed by the replacement of the hydrogen ion in an acid by a sodium ion.

Adrenal Gland

Endocrine glands located above the kidneys that produce hormones such as adrenaline and cortisol, which regulate the body's stress response and other vital functions.

Strong Craving

An intense desire or urge for a specific substance, activity, or experience, often associated with addiction or habit formation.

Adrenal Glands

Small glands located on top of each kidney; they produce hormones such as adrenaline and cortisol which help manage stress and other bodily functions.