Asked by Jessa Gesta on Jun 28, 2024
Verified
If each bank in the United States had to keep 100 percent of checkable deposits as reserves,each $1 the Fed injected into new reserves could increase the money supply by:
A) $1.
B) $2.
C) $100.
D) $5.
E) a penny.
Checkable Deposits
Bank account balances that can be withdrawn using checks or electronic debit, typically found in checking accounts.
Money Supply
The total amount of monetary assets available in an economy at a specific time, including cash, coins, and balances in bank accounts.
Fed
Short for the Federal Reserve System, which is the central banking system of the United States.
- Determine the function of the mandatory reserve ratio within the banking infrastructure and its impact on the generation of money.
- Recognize the contribution of commercial banks to the money expansion process through lending and deposit activities.
Verified Answer
JM
Jarrett MedinaJul 01, 2024
Final Answer :
A
Explanation :
If banks were required to keep 100 percent of checkable deposits as reserves, then the entire value of a new reserve injection by the Fed would be available for lending, which would increase the money supply by an equal amount (i.e. a $1 injection would lead to a $1 increase in the money supply). Therefore, the correct answer is A.
Learning Objectives
- Determine the function of the mandatory reserve ratio within the banking infrastructure and its impact on the generation of money.
- Recognize the contribution of commercial banks to the money expansion process through lending and deposit activities.