Suppose the required reserve ratio is 0.1 and Linda deposits 4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by 500, which of the following is true?
a. The bank must have lent out an additional 4,000.
b. 500 is the value of the bank's required reserves.
c. The bank now has excess reserves of 100.
d. Both the bank's assets and its liabilities rise by 500.
e. The bank now has 500 in excess reserves.
Question 2
A household that expects a decrease in disposable income in the future will _____.
a. increase its current consumption spending
b. decrease its current consumption spending
c. maintain its current consumption spending
d. first increase its current consumption spending and then decrease spending when income falls
e. first decrease its current consumption spending and then increase spending when income falls
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