Suppose there is only one kind of deposit in the banking industry, a checking de

Question

Suppose there is only one kind of deposit in the banking industry, a checking deposit. Suppose Bank A (one of many banks in the economy) holds deposits of $160,000 and total reserves of $10,000, of which $8,000 are required reserves.

1- What is the required reserve ratio in this economy?



A. 8%


B. 80%


C. 5%


D. 11%


E. 2%


2- Suppose that all the other banks in this economy hold no excess reserves, and the public uses checking deposits rather than hold currency. What is the money multiplier in this economy?



A. 12.5


B. 10


C. 20


D. 50


E. 9



3- Suppose that all the other banks in this economy hold no excess reserves, and the public uses checking deposits rather than hold currency. By how much would the banking system expand deposits if Bank A decided to loan out its excess reserves?

A. $2,000

B. $40,000

C. $100,000

D. $32,000

E. $160,000

Explanation / Answer

no

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