Everything Else Held Constant,an Increase in the Currency Ratio Causes

question 165

Multiple Choice

Everything else held constant,an increase in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________.

• A) decrease; increase
• B) increase; decrease
• C) decrease; decrease
• D) increase; increase

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Definitions:

M&M Proposition II

A firm’s cost of equity capital is a positive linear function of its capital structure.

Cost of Capital

The cost of funds used for financing a business, typically considered as the weighted average of the costs of equity and debt financing.

Tax Rate

The amount of tax a person or company must pay, expressed as a percentage of income.