In a Fractional Reserve Banking System with No Excess Reserves

question 25

Multiple Choice

In a fractional reserve banking system with no excess reserves and no currency holdings, suppose the central bank buys $100 million of bonds. Which statement best describes the effects of this open-market operation?

• A) Reserves and the money supply increase by less than $100 million.
• B) Reserves increase by $100 million, and the money supply increases by $100 million.
• C) Reserves increase by $100 million, and the money supply increases by more than $100 million.
• D) Both reserves and the money supply increase by more than $100 million.

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Definitions:

Mean Service Rate

The average rate at which a service process completes or services customers in a given time period.

Probability

The likelihood of an event happening, measured on a scale from 0 (impossibility) to 1 (certainty).

System

An organized set of interrelated elements or components that systematically work together to achieve a specific goal or objective.

Empty

A state or condition where no elements, members, or items are present, often used in data contexts to describe a lack of values.