Krugman's Economics For The Ap® Course
Krugman's Economics For The Ap® Course
3rd Edition
ISBN: 9781319113278
Author: David Anderson, Margaret Ray
Publisher: Worth Publishers
Question
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Chapter 25, Problem 1MCQ
To determine

The correct option that defines the item which includes the bank reserves.

Expert Solution & Answer
Check Mark

Answer to Problem 1MCQ

Option b is correct.

Explanation of Solution

Explanation for correct option:

b.

Bank reserve refers to the amount that is the part of bank deposit. Bank reserve refers to the amount in the bank account kept with the Federal Reserve. Therefore, option b is correct.

Explanation for incorrect options:

a.

Monetary base comprises of currency in circulation along with the bank reserve. In fact, bank reserve does not include currency in circulation as it cannot be used for lending purpose. Therefore, option a is incorrect.

c.

Customer deposits in bank checking accounts contribute to the total deposit of the bank. Therefore, option c is incorrect.

d.

Bank reserve is the part that comprises the monetary base as it is the sum of bank reserve and the currency in circulation. Therefore, option a is incorrect.

e.

Since, all options are not correct. Therefore, option e is incorrect.

Economics Concept Introduction

Reserve requirement: The rules set by the Federal reserve where banks are required to holder certain percentage of deposits or to main reserve as per mentioned reserve ratio can be referred as reserve requirement.

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