If the Required Reserve Ratio Is 20 Percent and Commercial

question 117

Multiple Choice

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the
Banking system will be

• A) 3.
• B) 4.
• C) 5.
• D) 6.

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Definitions:

Liability

Financial obligations or debts that a company owes to others, reflected on the balance sheet.

Drawing Account

An account used to record withdrawals of cash or other assets by the owner for personal use, reducing owner's equity.

Expense

An expense refers to the money spent or cost incurred in an entity's efforts to generate revenue representing the cost of doing business.

Account Title

The name given to an account in the financial statements that uniquely identifies it.