Suppose the Cash Drain in the Banking System Increases During

question 54

Multiple Choice

Suppose the cash drain in the banking system increases during holiday periods.As a result,

• A)the capacity of the banking system to create deposit money is dampened during holiday periods.
• B)the capacity of the banking system to create deposit money is increased during holiday periods.
• C)commercial banks decrease their target reserve ratios.
• D)changes in reserves will result in no change in deposits during holiday periods.
• E)the money supply will automatically increase.

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Definitions:

Break-even Point

The point at which total costs equal total revenue, meaning the business makes neither a profit nor a loss.

Variable Cost

Costs that change in proportion to the level of production or business activity, such as materials, labor, and utility costs.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salary, or insurance, providing stability to a company's expense structure.

Margin of Safety

The difference between actual or projected sales and the break-even point, often expressed as a percentage.