The Banking System Currently Has $50 Billion of Reserves,none of Which

question 111

Multiple Choice

The banking system currently has $50 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 10 percent.If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds,then by how much does the money supply change?

• A)It falls by $20 billion.
• B)It falls by $110 billion.
• C)It falls by $180 billion.
• D)None of the above is correct.

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Definitions:

Nara

A city in Japan known for its historic temples and artwork from the Japanese Nara period (710-794).

Muromachi

A period in Japanese history (1336-1573) characterized by the cultural achievements and military conflicts during the rule of the Ashikaga Shogunate.

Edo

The historical name for Tokyo during the period from 1603 to 1868, when it was the seat of the Tokugawa shogunate in Japan.

Hokusai

A Japanese artist, ukiyo-e painter, and printmaker of the Edo period, known for the iconic woodblock print series "Thirty-Six Views of Mount Fuji".