The Banking System Currently Has $10 Billion of Reserves,none of Which

question 72

Multiple Choice

The banking system currently has $10 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 buys $1 billion worth of bonds,then by how much does the money supply change?

• A)It falls by $12 billion.
• B)It falls by $19 billion.
• C)It falls by $21 billion.
• D)None of the above is correct.

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Definitions:

Marginal Rate

The rate at which one quantity changes with respect to a small change in another quantity.

Transformation

The process of changing from one state or condition to another, often used to describe changes in economic structures or industries.

Absolute Value

The distance of a number from zero on the number line, without considering direction.

OLED TVs

A type of television screen technology that uses organic light-emitting diodes to produce images, known for their high quality in terms of color and brightness.