1 Assuming a bank only keeps enough of its reserves to meet its reserve requirem
ID: 1199275 • Letter: 1
Question
1 Assuming a bank only keeps enough of its reserves to meet its reserve requirement, how much money is created when a bank receives a deposit from an individual of $100,000 and there is a 25% reserve requirement.
2 Assuming a bank only keeps enough of its reserves to meet its reserve requirement, how much money is created after the Federal Reserve purchases $40,000 worth of bonds from a bank (this means they deposit $40,000 in that bank's reserve account) and there is a 10% reserve requirement?
3 All of the following are true EXCEPT
4 I believe that the tax rate for Social Security is not high enough to pay me the benefits promised to me when I retire. At current tax levels, I believe that my benefit will be less than promised when I retire (this is the same as a higher implicit tax). As a result, I save money to make up for this shortfall in Social Security payments I believe will occur. This is an example of?
it will be politically easy to raise taxes on young workersExplanation / Answer
Answer1: Credit creation capacity of a bank = Primary deposits multiplied by reverse of reserve requirements = 100000/25% = 400000
Answer2: Credit creation capacity of a bank = Primary deposits multiplied by reverse of reserve requirements = 40000/10% = 400000
Answer3: It will be politically easy to tax young workers because it will be very difficult and ret all statements are true.
Answer4: Making best choice given varied options.
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