If the Fed Injects Reserves into the Banking System and They

question 78

Multiple Choice

If the Fed injects reserves into the banking system and they are held as excess reserves,then the monetary base ________ and the money supply ________.

• A)remains unchanged;remains unchanged
• B)remains unchanged;increases
• C)increases;increases
• D)increases;remains unchanged

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Definitions:

M&M Proposition I

A principle of corporate finance stating that the value of a firm is unaffected by how it is financed, in the absence of taxes, bankruptcy costs, and asymmetric information.

Interest Tax Shield

The reduction in income taxes that results from taking allowable deductions for interest expenses.

Capital Structure

The mix of different forms of external financing used by a company, including debt, equity, and hybrid securities.

Tax Shield

The decrease in income tax liability achieved by subtracting permissible deductions like mortgage interest or depreciation from one's taxable income.