Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result? O the money supply in the economy decreases O decrease of $1 million in Pacific's net worth O increase in Pacific's loan assets and decrease in its bond assets O increase in Pacific's loan assets and decrease in its reserve assets

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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QUESTION 8
Central bank policy requires all banks to hold 10%
of deposits as reserves. Pacific Bank policy
prevents it from holding excess reserves. Suppose
banks cannot trade any of the bonds they already
have. If the central bank decides to lower the
reserve requirement to 9%, which of the following
will result?
the money supply in the economy decreases
decrease of $1 million in Pacific's net worth
increase in Pacific's loan assets and
decrease in its bond assets
increase in Pacific's loan assets
and decrease in its reserve assets
Transcribed Image Text:QUESTION 8 Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result? the money supply in the economy decreases decrease of $1 million in Pacific's net worth increase in Pacific's loan assets and decrease in its bond assets increase in Pacific's loan assets and decrease in its reserve assets
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