If the Reserve Ratio Is 5 Percent,banks Do Not Hold

question 71

Multiple Choice

If the reserve ratio is 5 percent,banks do not hold excess reserves,and people do not hold currency,then when the Fed purchases $20 million worth of government bonds,bank reserves

• A)increase by $20 million and the money supply eventually increases by $400 million.
• B)decrease by $20 million and the money supply eventually decreases by $400 million.
• C)increase by $20 million and the money supply eventually increases by $100 million.
• D)decrease by $20 million and the money supply eventually decreases by $100 million.

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Definitions:

Appropriations

The act of setting aside funds for a specific purpose, often used in government budgeting.

Contra-Asset

An account on a company's balance sheet that reduces the value of related, primary asset accounts.

Appropriating Retained Earnings

The process of allocating retained earnings, often to specific purposes or reserves, as determined by a company's management or board of directors.

Accumulated Depreciation

The total depreciation for a fixed asset that has been charged to expense since that asset was acquired and made available for use.