Bank a Now Loans Out the Maximum It Can to Mr.Smith.Compared

question 43

Multiple Choice

Bank A now loans out the maximum it can to Mr.Smith.Compared to its position just after the deposit of $10,000 in newly printed currency,bank A now has

• A) demand deposits up by an additional $10,000.
• B) reserves up by an additional $1,250.
• C) assets up by an additional $10,000.
• D) loans and investments up by $8,750.
• E) net worth up by an additional $1,250.

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Definitions:

Accounting Principle

Fundamental guidelines or rules that govern the financial accounting field, ensuring consistency, reliability, and comparability of financial statements.

Investment Account

An account held at a financial institution that contains securities, cash, and other assets that are invested for the purpose of earning a return.

Dividends

Distributions of a portion of a company's earnings, decided by the board of directors, to its shareholders.

Indefinite Life

An intangible asset that lacks a foreseeable limit to its useful life and is not amortized but rather assessed for impairment annually.