(Table) Consider the T-Account in the Table A) the Potential Money Multiplier and the Actual Money Multiplier

question 125

Multiple Choice

(Table) Consider the T-account in the table. If the reserve requirement is 20%, then: $$\begin{array} { | l | l | } \hline \text { Assets } & \text { Liabilities } \\\hline \$ 25,000 \text { (cash) } & \begin{array} { l } \$ 50,000 \text { (checking account } \\\text { balances) }\end{array} \\\hline \$ 50,000 \text { (loans) } & \begin{array} { l } \$ 25,000 \text { (loan recipients' checking } \\\text { account balances) }\end{array} \\\hline\end{array}$$

• A) the potential money multiplier and the actual money multiplier are the same.
• B) the potential money multiplier is larger than the actual money multiplier.
• C) the potential money multiplier is smaller than the actual money multiplier.
• D) the actual money multiplier is zero.

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Definitions:

Temporary Accounts

Accounts that track transactions within a fiscal period and are reset to zero at the start of the next period, including revenues, expenses, and dividends.

Owner's Drawings

Withdrawals of a company's earnings by the owner for personal use, affecting the owner’s equity account in a separately held business.

Accumulated Depreciation

This accounts for the total depreciation expenses charged against a fixed asset since it was put into use, reflecting the decrease in value of the asset.

Income Summary

An account used in the closing process that summarizes revenues and expenses for a period, determining the net income or loss.