If a Bank Uses $100 of Excess Reserves to Make

question 24

Multiple Choice

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 25 percent,what happens to the money supply in the very short term?

• A) It decreases by $100.
• B) It increases by $25.
• C) It decreases by $25.
• D) It increases by $100.

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Definitions:

Markup

A pricing strategy where a seller adds to the cost of the goods to determine the selling price, aimed at ensuring a profit margin above cost.

Selling Prices

The actual amount that a customer pays for a product or service, which can include discounts, promotions, and taxes.

Markup

The amount added to the cost price of goods to cover overhead and profit, determining the selling price of the product.

Selling Price

The cost at which an item is offered to buyers in the marketplace.