The Following Question Refer to the Table That Follows

question 15

Multiple Choice

The following question refer to the table that follows. Assume that there is a fractional-reserve banking system, that the legal reserve requirements are 10 percent, and that the balance sheet for Bank X is as follows:

-If Bank X safely increases its loans

• A) the country's money supply is unaffected.
• B) the bank's net worth is immediately increased.
• C) both its demand deposit liabilities and its assets will be temporarily increased by the amount of the loan.
• D) only its demand deposit liabilities will be increased.
• E) its demand deposit liabilities will be increased by some multiple of the loan.

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Definitions:

Credit Terms

The conditions, including repayment period and interest rates, under which credit is extended by a lender to a borrower.

Credit Extended

Credit extended refers to the amount of credit or loan a lender provides to a borrower, allowing them to purchase goods or services on credit.

Discount

A reduction in the price or value of a product, security, or bond below its nominal or face value, often to encourage sale or investment.

Break-Even Default Rate

The default rate at which the expected return from a loan equals the cost of the loan, resulting in no profit or loss.