If the Required Reserve Ratio in the Banking System Is

question 1

Multiple Choice

If the required reserve ratio in the banking system is 10% and the Fed buys $1,000 in U.S. bonds, what will happen to supply?

• A) It will increase by as much as $5,000.
• B) It will decrease by as much as $5,000.
• C) It will increase by as much as $10,000.
• D) It will decrease by as much as $10,000.
• E) It will remain unchanged.

Recognize the best cash management practices for firms with multiple offices and national customers.

Identify various motives for holding cash and the associated benefits.

Understand the concept of float in cash management and its implications.

Determine the optimal cash balance for firms using models like the BAT and Miller-Orr models.

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Definitions:

Cigarette Taxes

A tax levied on cigarettes to increase their price and decrease their consumption for health policy reasons.

Demand for Cigarettes

refers to the total quantity of cigarettes that consumers are willing and able to purchase at a given price level over a specific period of time.

Elastic

A characteristic of a good or service that indicates a high sensitivity of quantity demanded or supplied to changes in its price.

Normal Goods

Goods for which demand increases as the income of the consumer increases and falls when the income of the consumer decreases, all else being equal.