Assume the reserve requirement is 10 percent. First National Bank has vault cash and deposits with the Fed of 40 million, loans and securities of 360 million, and demand deposits of 400 million. First National:
a. is not in a position to extend additional loans.
b. could extend a maximum of 10 million of additional loans.
c. could extend a maximum of 20 million of additional loans.
d. could extend a maximum of 40 million of additional loans.
Question 2
According to the rational expectations view, _____.
a. the economy will never deviate from the natural rate of unemployment for any anticipated policy
b. the long-run inflation rate is equal to zero
c. expected inflation is always less than actual inflation
d. people use only past information to form expectations about future inflation rates
e. announced money-growth policies are quite effective in reducing unemployment below its natural rate
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