Suppose the Required Reserve Ratio Is 25% and a Customer

question 320

Multiple Choice

Suppose the required reserve ratio is 25% and a customer deposits $300 in her checkable deposit. The money supply will _____ if the banking system does NOT hold any excess reserves.

• A)increase by $1,200
• B)increase by $900
• C)increase by $300
• D)be unchanged

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Definitions:

Dishonor

The refusal or inability of an entity to fulfill a financial obligation, such as a check or bill.

Primarily Liable

Refers to the primary obligation or responsibility for fulfilling a debt or obligation, typically before any secondary or tertiary parties.

Accepts Check

The process of agreeing to take a check as a method of payment.

Party Status

The recognition of being a participant or member in a legal action or in a contractual or political relationship.