When the Fed Decreases Reserve Requirements, If the Ratio of Currency

question 27

Multiple Choice

When the Fed decreases reserve requirements, if the ratio of currency to deposits decreases also while the monetary base is constant, then:

• A)it cannot be determined whether the money supply increases or decreases.
• B)the money supply increases.
• C)the money supply decreases.
• D)the two changes exactly offset each other.

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Definitions:

Dividend Payout

The part of a business's profits distributed to its shareholders as dividends.

Operating Capacity

The maximum output that a company can achieve using its production equipment under normal working conditions.

Dividend Payout Ratio

A financial metric that measures the percentage of a company's net income that is paid out to shareholders in the form of dividends.

External Financing

Funds a business acquires from outside sources to finance its operations, including loans, issue of shares, bonds, and other financial instruments.