Assume That the Banks Do Not Hold Any Excess Reserves

question 9

Multiple Choice

Assume that the banks do not hold any excess reserves and the reserve ratio is 20%. If Sarah deposits $5,000 in cash in her checking account, the money supply can potentially increase by:

• A)$20,000.
• B)$25,000.
• C)$5,000.
• D)$1,000.

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Definitions:

Underfund Liability

The shortfall or deficit when the assets of a fund, like a pension, are insufficient to cover the obligations.

Defined Benefit Plan

A type of pension plan where retirement benefits are determined based on a formula, typically involving salary and service years.

Retirement Plan

A financial agreement designed to provide individuals with income during their retirement years.

Benefits Plan

A specific arrangement by an organization that outlines the non-wage compensations available to employees, such as health insurance, retirement contributions, and time off.