-Refer to Table 10-2

question 172

Multiple Choice

-Refer to Table 10-2. If the reserve requirement is 10 percent and then someone deposits $50,000 into the bank, what is the bank's reserve position?

• A) It will have $75,000 in excess reserves.
• B) It will have $52,500 in excess reserves.
• C) It will need to raise reserves by $5000.
• D) It will have excess reserves of $2500.

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Definitions:

Fixed Expenses

Costs that do not change with the level of production or sales over the short term, such as rent, salaries, and insurance.

Break-even Point

The break-even point is the sales level at which total revenues equal total costs, resulting in neither profit nor loss.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, showing the impact of fixed costs on earnings.

Net Operating Income

A measure of a company's profitability, calculated by subtracting operating expenses from gross profit, not including non-operating income and expenses, interest, and taxes.