If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 20 percent, what happens to the money supply in the very short term? Question 27 options: It decreases by $100. It increases by $100. It increases by $500. It decreases by $500

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 20 percent, what happens to the money supply in the very short term? Question 27 options: It decreases by $100. It increases by $100. It increases by $500. It decreases by $500

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 5WNG

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Question

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 20 percent, what happens to the money supply in the very short term?

Question 27 options:

	It decreases by $100.
	It increases by $100.
	It increases by $500.
	It decreases by $500

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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