The banking system currently has $50 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 sells $10 billion worth of bonds, then by how much does the money supply change?
a. It falls by $20 billion.
b. It falls by $110 billion.
c. It falls by $180 billion.
d. None of the above is correct.
c
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Because the banking system operates using fractional reserves,
a. the money multiplier is greater than one b. excess reserves are equal to zero c. required reserves are equal to 100 percent d. banks can loan out only their required reserves e. the money multiplier must be equal to zero
Falling output, in the short run, could be due to:
A. an increase in short-run aggregate supply. B. a reduction in aggregate demand. C. an increase in long-run aggregate supply. D. an increase in aggregate demand.
An important function of stock sales after the IPO is to equalize
A. profits across industries. B. profits across firms within industries. C. risk-adjusted rates of return. D. risk-unadjusted rates of return.
A government grant that gives an inventor the exclusive right or privilege to make, use, or sell his or her invention is known as
A) a negative externality. B) a patent. C) a protectionism clause. D) a positive externality.