If a Bank Faced a 25 Percent Required Reserve Ratio

question 43

Multiple Choice

If a bank faced a 25 percent required reserve ratio and had demand deposits of $80 million, then it can loan out a maximum amount of _____.

• A)$20 million
• B)$40 million
• C)$60 million
• D)$80 million
• E)$100 million

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Definitions:

Aggregate Demand-Aggregate Supply Model

A macroeconomic model that explains price level and output through the relationship between aggregate demand and aggregate supply.

Long-Run Equilibrium

Refers to a state in an economy where all factors of production are efficiently utilized, and supply equals demand, leading to stable prices and full employment over time.

Money Supply

The aggregate financial resources present in an economy at a given time, which include currency, coinage, and the deposits in both current and savings accounts.

Tax Rate

The percentage at which an individual or corporation is taxed, which can vary depending on income level, type of good, or service.