If the Reserve Ratio Increased from 10 Percent to 20

question 139

Multiple Choice

If the reserve ratio increased from 10 percent to 20 percent,which of the following would happen to the money multiplier?

• A)It would rise from10 to 20.
• B)It would rise from 5 to 10.
• C)It would fall from 10 to 5.
• D)It would fall from 20 to 5.

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Definitions:

Discount Rate

The interest rate charged by central banks on loans to commercial banks or the rate used in discounted cash flow analysis to determine the present value of future cash flows.

Cash Discounts

A reduction in the price of goods or services offered to customers as an incentive for early payment within a specified period.

Interest Days

The number of days over which interest accrues on a loan, deposit, or investment.

Finance Charge

The fee that the seller charges for the privilege of buying on credit.