Everything Else Equal, If the Ratio of Bank Assets to Bank

question 70

Multiple Choice

Everything else equal, if the ratio of bank assets to bank capital decreases, the bank's return on equity should:

• A) decrease.
• B) remain constant.
• C) increase.
• D) cannot be determined from the information provided.

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Definitions:

Present Consumption

The use of goods and services for immediate satisfaction or needs, as opposed to saving for future use.

Loanable Funds

The supply of available capital in the financial markets for borrowing, which can be used for investment purposes by individuals and businesses.

Future Consumption

The use of goods or services at a later date, often facilitated by saving or investing in the present.

Productivity of Capital Goods

The effectiveness with which capital goods, such as machinery and equipment, produce goods or services.