Assume That the Required Reserve Ratio Is 20 Percent

question 150

Multiple Choice

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from commercial banks, then the money supply will immediately:

• A) Increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million
• B) Increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million
• C) Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million
• D) Increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million

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Definitions:

Oral Contract

An agreement between parties that is spoken rather than written but is still legally binding.

Quasi Contract

An obligation imposed by law to prevent unjust enrichment, even though no formal contract exists between the parties.

Remedies

The means by which a right is enforced or the violation of a right is prevented, redressed, or compensated.

Sale of Goods

A transactional agreement between a seller and a buyer for the exchange of personal property for a certain price.