Suppose the Banking System Has $10 Million in Reserves and the Reserve

question 70

Multiple Choice

Suppose the banking system has $10 million in reserves and the reserve ratio is 25 percent. Then bankers decide to decrease the reserve ratio to 20 percent. How does this decision eventually change the money supply?

• A) increases by $0.5 million
• B) increases by $5 million
• C) increases by $10 million
• D) increases by $20 million

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Definitions:

Human Brain

The central organ of the human nervous system, responsible for thought, memory, emotion, touch, motor skills, vision, breathing, temperature, and every process that regulates our body.

Birth

The emergence of a baby or other young from the body of its mother; the start of life as a physically separate being.

Co-sleeping

The practice where babies and young children sleep close to one or both parents, as opposed to in a separate room.

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