On a Certain Date the Banking System Had $2 Billion

question 30

Multiple Choice

On a certain date the banking system had $2 billion in excess reserves.The legally required reserve ratio was 12.5 percent.Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of:

• A)$2 billion.
• B)$2.5 billion.
• C)$12.5 billion.
• D)$16 billion
• E)$25 billion.

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Definitions:

Income Elasticity

An indicator of the degree to which demand for a product or service shifts following a variation in consumer income.

Housing

The provision of accommodation, typically through buildings or structures where individuals or families live.

Income Increase

A rise in the amount of money earned by an individual or collected by an organization, often measured on a monthly or yearly basis.

Cross-price Elasticity

A measure of how the quantity demanded of one good responds to a change in price of another good, indicating the degree of substitutability or complementarity between the two goods.