If a Bank Sells a $1,000 Security to the Fed

question 18

Multiple Choice

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent:

• A)the bank has $1,000 in additional excess reserves,of which it can lend $800.
• B)the bank has $1,000 in additional excess reserves,all of which it can lend out.
• C)the bank has lost an asset and must reduce its loans.
• D)the bank has lost a liability.
• E)there is no change in excess reserves,since net assets do not change.

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Definitions:

Random Sampling

A technique used in research to select a subset of individuals from a larger population by chance, ensuring each member has an equal opportunity of being chosen.

Validity

The extent to which a concept, conclusion, or measurement is well-founded and likely corresponds accurately to the real world.

Egocentric Fallacy

The mistaken belief that one's own personal experience or values are universal.

Ethnocentrism

The belief in the superiority of one's own ethnic group or culture over others.