Mena Receives a $1,000 Check from Her Parents for Her

question 57

Multiple Choice

Mena receives a $1,000 check from her parents for her birthday,and she deposits this in a bank that faces a 10 percent reserve ratio.What is the consequence if the bank then deposits her check at the Federal Reserve?

• A) Excess reserves increase by $1,000 and required reserves increase by $100.
• B) Excess reserves increase by $900 and required reserves increase by $100.
• C) Excess reserves increase by $1,000.
• D) Required reserves increase by $1,000.
• E) Reserves are not affected.

---

Definitions:

Net Present Value

Net Present Value calculates the difference between the present value of cash inflows and the present value of cash outflows over a period, used to assess the profitability of investments.

Internal Rate

Often related to the internal rate of return (IRR), it is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Cost Of Capital

The rate of return that a company must earn on its project investments to maintain its market value and attract investors.

Average Rate

Usually refers to the mean value of a set of rates or percentages over a specified period or set of conditions.