If Bankers Decide to Keep a Lower Fraction of Deposits

question 25

Multiple Choice

If bankers decide to keep a lower fraction of deposits on reserve, the money supply will

• A)decrease.
• B)increase.
• C)remain unchanged.
• D)move more quickly through the economy.

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Definitions:

Retained Earnings

The portion of a company's profits that is retained or re-invested in the business instead of being paid out as dividends to shareholders.

Marginal Cost Of Capital

The cost of obtaining an additional dollar of new capital, which can influence investment and financing decisions.

Investment Opportunity Schedule

A curve depicting the relationship between the required rate of return on investments and the total amount of investment, illustrating how much investment can be undertaken for a given return.

Dedicated Funding

A financial strategy where specific funds are allocated for a particular purpose or project.