Use the Following to Answer Questions

question 253

Multiple Choice

Use the following to answer questions :
Scenario: Money Creation
The reserve requirement is 20%. Leroy receives $1,000 as a graduation present and deposits the money in his checking account. The bank does NOT want to hold excess reserves.
-(Scenario: Money Creation) Look at the scenario Money Creation. What is the maximum possible expansion in the money supply?

• A)$1,000
• B)$1,800
• C)$4,000
• D)$5,000

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Definitions:

Profit Incentives

Motivations for individuals or companies to undertake activities that increase their profits.

Capitalism

An economic system based on private ownership of the means of production and their operation for profit, characterized by a free market and open competition.

Unlimited Mileage

A rental or leasing term indicating that there is no limit to the number of miles that can be driven during the rental period, without incurring extra charges.

Auto Rentals

A service industry that provides automobiles for temporary use to customers, typically charged by the hour or day.