The Banking System Currently Holds $20 Billion in Required Reserves

question 160

Multiple Choice

The banking system currently holds $20 billion in required reserves and zero excess reserves.The Fed lowers the required reserve ratio from 15 percent to 12.5 percent.Assuming that there are no cash leakages,the resulting change in checkable deposits (or the money supply) is approximately

• A)$2.7 billion.
• B)$1.5 billion.
• C)$2.0 billion.
• D)$12.5 billion.
• E)$26.6 billion.

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Definitions:

Drawer

In banking and finance, the person who writes or issues a cheque, telling the bank to pay the specified amount from their account.

Promissory Note

A written promise made by one person (the maker) to pay a fixed sum of money to another person (the payee or a subsequent holder) on demand or on a specified date.

Specific Payee

The designated individual or entity to whom a particular payment is directed or made.

Definite Time

A specific, clearly identified period or moment when something occurs or is scheduled to happen.