Assume That There Is a 25 Percent Reserve Ratio and That

question 357

Multiple Choice

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of

• A) $600 million, and also by $600 million if the securities are purchased directly from commercial banks.
• B) $800 million, and also by $800 million if the securities are purchased directly from commercial banks.
• C) $600 million, but by $800 million if the securities are purchased directly from commercial banks.
• D) $800 million, but only by $600 million if the securities are purchased directly from commercial banks.

---

Definitions:

Income Statement

A financial report that shows a company's revenues and expenses over a specific period, resulting in net profit or loss.

Balance Sheet

A financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.

Service Revenue

Income earned by a company through the provision of services to customers or clients.

Notes Payable

A written promise to pay a specified amount of money, along with interest, by a certain date.