Assume That the Reserve Requirement Is 20 Percent

question 77

Multiple Choice

Assume that the reserve requirement is 20 percent. First National Bank has vault cash and deposits with the Fed of $80 million, loans and securities of $320 million, and demand deposits of $400 million. First National:

• A)​could extend a maximum of $40 million of additional loans.
• B)​could extend a maximum of $20 million of additional loans.
• C)​could extend a maximum of $10 million of additional loans.
• D)​is not in a position to extend additional loans.

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Definitions:

Income Redistribution

The reallocation of income across a society through taxation, monetary policies, and welfare systems.

Total Utility

The total satisfaction received from consuming a particular quantity of a good or service.

Incentives

Rewards or penalties that influence the motivation and behaviors of individuals and organizations towards certain actions.

Minimum-Wage Laws

A law that establishes the minimum hourly wage employers are legally allowed to pay their employees.