Suppose That the Required Reserve Ratio Is 0

question 176

Multiple Choice

Suppose that the required reserve ratio is 0.4. If a customer withdraws $10 million from a bank, then the money supply could potentially:

• A) decrease by $40 million.
• B) decrease by $25 million.
• C) increase by $2.5 million.
• D) increase by $40 million.

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Definitions:

Standard Cost Accounting System

A standard cost accounting system estimates the cost of production in advance, using standard costs for materials, labor, and overhead for cost control and performance evaluation.

Direct Labor Payroll

The total cost of wages and benefits paid to employees who are directly involved in the production of goods or delivery of services.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders based on a predetermined base, such as labor hours or machine hours.

Labor Quantity Variance

This refers to the difference between the expected amount of labor hours necessary to produce a good or service and the actual hours used, measured in financial terms.