Suppose That the Desired Reserve Ratio Is 20 Percent and That

question 40

Multiple Choice

Suppose that the desired reserve ratio is 20 percent and that a bank is just meeting that requirement when $10,000 in cash is withdrawn from a demand deposit.The bank must now

• A)decrease its reserves by $2,000.
• B)increase its reserves by $8,000.
• C)make $200,000 in new loans.
• D)do nothing since both its assets and liabilities are affected equally.

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Definitions:

Market Control

The ability of a single entity or a few entities to significantly influence the conditions or terms in a particular market.

Input Standards

Pre-defined criteria or benchmarks used to measure the quality, quantity, or timeliness of inputs in a production or manufacturing process.

Output Standards

Benchmarks set to measure the quantity, quality, or performance of a product or service produced.

Inferior Good

A type of good for which demand decreases as the income of consumers increases, opposite to a normal good.