If Reserves Increase by $7 Million and the Required Reserve

question 36

Multiple Choice

If reserves increase by $7 million and the required reserve ratio is 12%,what is the resulting change in checkable deposits (or the money supply) ,assuming that there are no cash leakages and that banks hold zero excess reserves?

• A)$0.84 million
• B)$7.95 million
• C)$5.83 million
• D)$58.33 million

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Definitions:

Payback Periods

The length of time required to recover the original investment cost through the generated returns.

Profitable

A financial state where earnings exceed expenses, resulting in a positive net income.

Discount Rate

The discount rate applied in DCF analysis to calculate the current value of future cash flows.

Net Present Value

The discrepancy between the current worth of incoming cash and the current worth of outgoing cash over a certain timeframe, utilized in the process of capital budgeting to evaluate an investment's profitability.