A war on drugs is waged, and, as a result, a larger quantity of drugs flowing into the United States is seized and more drug traffickers are arrested. If demand for drugs is relatively elastic, one would expect the total expenditure on drugs to:
a. decrease.
b. increase.
c. stay constant.
d. There is not enough information available to make a determination.
Question 2
On a certain date the banking system had 2 billion in excess reserves. The legally required reserve ratio was 12.5 percent. Potentially, if these funds were fully loaned out, the banking system as a whole could increase the money supply by a maximum of:
a. 0.25 billion.
b. 2.5 billion.
c. 12.5 billion.
d. 16 billion
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