Suppose the Banking System Has No Excess Reserves and Required

question 1

Multiple Choice

Suppose the banking system has no excess reserves and required reserves equal to 20 percent of checkable deposits.If the Fed sells $10,000 in securities to Joe Bankustomer,what is the most that checkable deposits in the banking system fall? (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)

• A)$2,000
• B)$10,000
• C)$20,000
• D)$50,000
• E)$500,000

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Definitions:

Special Project

A temporary endeavor with a specific goal and timeline, which may require resources outside of the company's normal work scope.

Relevant Cost

Expenses that are directly tied to a specific business decision, which may affect the outcome of that decision.

Discounted Price

The reduced price of an item after applying a discount, which lowers the selling price from its original level.

Scrap Value

The calculated resale value of an asset at the end of its period of serviceability.