If the Reserve Ratio Is 10 Percent,banks Do Not Hold

question 130

Multiple Choice

If the reserve ratio is 10 percent,banks do not hold excess reserves,and people do not hold currency,then when the Fed purchases $20 million of government bonds,bank reserves

• A)increase by $20 million and the money supply eventually increases by $200 million.
• B)decrease by $20 million and the money supply eventually increases by $200 million.
• C)increase by $20 million and the money supply eventually decreases by $200 million.
• D)decrease by $20 million and the money supply eventually decreases by $200 million.

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Definitions:

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the company's short-term liquidity and financial health.

Net Present Value (NPV)

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of an investment or project.

Net After-Tax Salvage Value

The estimated value of an asset at the end of its useful life, after subtracting any taxes associated with its disposal.

Operating Cash Flow

The cash generated from normal business operations, reflecting the company’s ability to generate sufficient revenue to cover its operational expenses.