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- Money, Interest Rates And Outputeconomics-mcqs › money-interest-rates-and-output
- Published
- 31 May 2019
- Last updated
- 28 May 2026
Banca Solida has traditionally maintained a reserve ratio of 25%. After being acquired by Gung-Ho Bank, which uses a reserve ratio of 12.5%, what impact will adopting Gung-Ho Bank's reserve practices have on the money supply in Banca Solida's country?
Multiple choice question for Money, Interest Rates And Output. Select an option, then review the explanation below.
Explanation
When Banca Solida lowers its reserve ratio from 25% to 12.5%, it can lend out a larger portion of its deposits. This increase in lending expands the money supply in the economy. Therefore, adopting Gung-Ho Bank's reserve ratio will lead to a rise in the money supply.
More Money, Interest Rates And Output MCQs
Practice related questions from the same subject.
- 1.How does a decrease in interest rates affect the monetary base, consumer credit availability, and the cost of consumer credit?
- 2.Which variable do central banks typically set directly, and which variable adjusts as a consequence?
- 3.What is it called when the central bank purchases financial assets in the open market to expand the monetary base?
- 4.M4 is considered a __________ monetary aggregate and encompasses deposits held at both __________ and __________?
- 5.Assuming all other factors remain constant, what happens to the quantity of real money holdings when interest rates increase?