Question 1
Assume that all commercial banks are loaned up. Total deposits in the banking system are $200 million. The required reserve ratio is increased. The money supply will
◦ decrease.
◦ increase.
◦ not change because there was no change in deposits.
◦ not change because the required reserve ratio has no impact on money supply.
Question 2
The interest rate banks pay to borrow money from the Fed is the
◦ federal funds rate.
◦ discount rate.
◦ prime lending rate.
◦ reserve rate.