The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer?s deposit account at Bank ABC, then
A) Bank ABC can make no additional loans.
B) Bank ABC can make additional loans up to $800,000.
C) Bank ABC can make additional loans up to $1 million.
D) Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million.
Answer: B) Bank ABC can make additional loans up to $800,000.
You might also like to view...
Current thinking on the Phillips curve suggests that it would be best for policy makers to: a. focus on controlling unemployment. b. stimulate permanent shifts in aggregate supply
c. focus on controlling inflation. d. stimulate permanent shifts in aggregate demand. e. develop a two-pronged policy to control both unemployment and inflation.
When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds
a. True b. False Indicate whether the statement is true or false