Suppose That in a Country People Gain More Confidence in the Banking

question 126

Multiple Choice

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will

• A) decrease and the money supply will eventually decrease.
• B) decrease and the money supply will eventually increase.
• C) increase and the money supply will eventually decrease.
• D) increase and the money supply will eventually increase.

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Definitions:

Net Present Value

A financial metric used to appraise the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period.

Interest Rate

The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal, over a given period.

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

Net Present Value

A financial metric that calculates the present value of expected future cash flows relative to the initial investment, used to assess the profitability of an investment.