When a Banker Accepts a Deposit of $1,000 in Cash

question 55

Multiple Choice

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

• A) decreases the money supply by $1,000.
• B) decreases the money supply by $200.
• C) does not change the money supply.
• D) increases the money supply by $200.
• E) increases the money supply by $800.

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Definitions:

Noncash Assets

Assets that cannot be easily converted into cash, such as real estate, equipment, and intellectual property.

Liquidated

The process of converting assets into cash or paying off liabilities in the process of closing or restructuring a business.

Capital Balances

The amount of money in a company's accounts that represents the capital contributed by the owners or shareholders.

Capital Interest

The stake that a particular investor holds in the equity of a firm, often represented by the share of the company's capital owned by the investor.