When Part of a Bank Loan Does Not Return to the Banking

question 181

Multiple Choice

When part of a bank loan does not return to the banking system but rather remains outside the banking system as currency,then the money multiplier ________ in size and the amount of money created by an open market operation ________.

• A)increases;decreases
• B)decreases;does not change
• C)does not change;increases
• D)increases;increases
• E)decreases;decreases

---

Definitions:

Interest Expense

The financial charge for the use of borrowed funds that an entity experiences over time.

Current Year

Refers to the present calendar year or fiscal year in which transactions and events are being recorded or reported.

Bond Premium

The amount by which the market price of a bond exceeds its principal amount or face value.

Effective Interest Rate

The actual return on an investment, taking into account the effect of compounding interest, as opposed to the nominal rate.