If a Bank Uses $200 of Excess Reserves to Make

question 33

Multiple Choice

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent,this action by itself initially makes the money supply

• A)and wealth increase by $200.
• B)and wealth decrease by $200.
• C)increase by $200 while wealth does not change.
• D)decrease by $200 while wealth decreases by $200.

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Definitions:

Cognitive Dissonance

The mental discomfort experienced by a person holding two or more contradictory beliefs, values, or ideas.

Dissonance

A psychological or emotional state of tension resulting from conflicting attitudes, beliefs, or behaviors.

Festinger

Leon Festinger, an American social psychologist known for his theory of cognitive dissonance, which describes the discomfort experienced when holding two or more conflicting cognitions.

Sherif's Robbers Cave

An experiment on conflict and cooperation by Muzafer Sherif, demonstrating how group identity can be used to foster unity or create conflict.