1221EconomicsMedium
Bance Solida has, in the past, always operated with a reserve ratio of 25 percent. It has now been taken over by Gung-Ho Bank Which operates with a reserve ration of 121⁄2 percent, Assuming that Banca Solida adopts the business practices of its new owner, What will be the effect on money supply in the country in which Banca Solida operates?
AMoney supply will increase because Banca Solida will increase its loans
BMoney supply will be unchanged because the central bank has made no policy changes
CMoney supply will decrease because the loans will have to be repaid
DThe effect on money supply cannot be determined from the information given
Correct answer
A. Money supply will increase because Banca Solida will increase its loans
Explanation
The correct answer is Money supply will increase because Banca Solida will increase its loans.