Suppose Bank a Holds $200 of Reserves, Has Deposits of $1000

question 36

Multiple Choice

Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15 per cent. How many loans can Bank A create at Bank A?

• A)Zero, because Bank A has no excess reserves
• B)$50
• C)$200
• D)$850

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Definitions:

Payback Period

The length of time required to recover the cost of an investment or project.

Factory Overhead

Factory Overhead includes all indirect costs associated with manufacturing, such as electricity for the factory, maintenance, and salary of the maintenance staff.

Direct Materials

Raw materials that can be directly traced to the production of goods, forming a significant part of manufacturing costs.

Net Cash Inflows

The total amount of money received from operations, investments, and financing activities, minus the amount of money spent.