In the Nineteenth Century, When There Were Often Bank Runs

question 116

Multiple Choice

In the nineteenth century, when there were often bank runs caused by crop failures, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, which action should the banks have taken?

• A) They should have increased both the money multiplier and the money supply.
• B) They should have decreased the money multiplier and increased the money supply.
• C) They should have increased the money multiplier and decreased the money supply.
• D) They should have decreased both the money multiplier and the money supply.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.

Fixed Costs

Costs that do not change with the level of goods or services produced in the short term.

Short Run

A period in economics where at least one factor of production is fixed, limiting the firm's ability to adjust to changes in market demand.

Variable Costing

An accounting method where variable costs are charged to cost units and fixed costs are treated as period costs.