If We Assume M to Be Equal to the Maximum

question 103

Multiple Choice

If we assume m to be equal to the maximum amount of dollar that can be created from a single dollar of excess reserves and R to be equal to the desired reserve ratio, then we can say that for the banking system:

• A)m = R - 1.
• B)R = m/1.
• C)R = m - 1.
• D)m = 1/R.

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Definitions:

Contribution Margin

The residual amount from sales income following the deduction of variable expenses, allocated for covering fixed costs and producing profit.

Variable Costs

Expenses that vary in relation to the amount of production or business activity.

Fixed Costs

Costs that do not change with the level of output produced, such as rent and salaries.

Break-Even Point

The financial analysis term where total costs and total revenues are equal, resulting in no net loss or gain for the business.