Suppose the Reserve Ratio Is 4 Percent,banks Do Not Hold

question 102

Multiple Choice

Suppose the reserve ratio is 4 percent,banks do not hold excess reserves,people do not hold currency,and the Bank of Canada purchases $25 million of government bonds.Which statement best describes the effects of Bank of Canada's purchase?

• A) Bank reserves increase by $25 million,and the money supply eventually increases by $500 million.
• B) Bank reserves decrease by $25 million,and the money supply eventually increases by $500 million.
• C) Bank reserves increase by $25 million,and the money supply eventually decreases by $500 million.
• D) Bank reserves decrease by $25 million,and the money supply eventually decreases by $500 million.

---

Definitions:

Interdependencies

Mutual dependencies between parts, actions, or entities, where changes in one area may produce outcomes in another, emphasizing the interconnectedness of components.

Central Repository

A centralized database or storage location where data is stored and managed, often used in software development for version control or in data management.

Unified Approach

A method or strategy that combines various elements or processes into a cohesive and coordinated whole.

Internal Improvement

Efforts or initiatives within an organization aimed at enhancing processes, practices, and performance from the inside, focusing on efficiency, productivity, and quality enhancement.