Which of the Following Is the Relationship Between the Required

question 160

Multiple Choice

Which of the following is the relationship between the required reserve ratio (RRR) and the demand deposit multiplier?

• A) The demand deposit multiplier = 1/RRR
• B) The demand deposit multiplier = RRR × change in reserves
• C) The demand deposit multiplier = 1/(1 + RRR)
• D) RRR = demand deposit multiplier
• E) The demand deposit multiplier = 1/(1 - RRR).

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Definitions:

Variable Cost

Costs that vary directly with the level of production or service delivery.

Carrying Cost

Expenses associated with holding or storing inventory, including insurance, storage, and opportunity costs of invested capital.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used in capital budgeting to analyze the profitability of an investment.

Default Probability

The likelihood that a debtor will fail to make required payments on their debt.