Given a 25 percent desired reserve ratio, assume the chartered banking system is loaned up. Now assume the desired reserve ratio falls to 20 percent. 37 As a result ofthis reduction: Multiple Choice 0 each dollar of bank reserves will now support a maximum of$5 of demand deposits. the banking system must now reduce outstanding loans by 5 percent. the banking system can now increase lending by 5 percent. . we can expect bank lending and bank prots to decline. The following is information about a banking system: new currency deposited in the system = $40 billion; desired reserve ratio = 20%; excess reserves 48 prior to the new currency deposit = $0. Refer to the above information. The total demand deposit after the expansion of the money supply through loans is: Multiple Choice . $40 billion. $200 billion. $128 billion. 0 0 $160 billion. 0 5 1 Assuming prices and wages are flexible, a recession will decrease the price level, which: Multiple Choice O raises nominal wages, and which eventually increases the short-run aggregate supply curve, thus increasing real output to its original level. raises nominal wages, and which eventually decreases the short-run aggregate supply curve, thus decreasing real output to its original level. 0 reduces nominal wages, and which eventually increases the shortrun aggregate supply curve, thus increasing real output to its original level. 0 reduces nominal wages, and which eventually decreases the short-run aggregate supply curve, thus decreasing real output to its original level