Assume All Banks in the System Started Have a 10

question 89

Multiple Choice

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase. The result would be a(n) :

• A) $200,000 expansion of the money supply.
• B) $20,000 expansion of the money supply.
• C) $20,000 contraction of the money supply.
• D) infinite contraction of the money supply.

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Definitions:

Discounted Cash Flow

A valuation method used to estimate the attractiveness of an investment opportunity, by calculating the present value of expected future cash flows.

Discounted Payback

A capital budgeting method that calculates the amount of time needed to recoup an investment based on its discounted cash flows.

Profitability Index

A calculation used to assess the desirability of an investment, defined as present value of future cash flows divided by initial investment.

Net Present Value

Net Present Value (NPV) is a financial measurement that calculates the current value of expected future cash flows from an investment, adjusted for time and interest.