Scenario 11-2 A Bank's Assets Consist of $1 000 000 in Total

question 155

Multiple Choice

Scenario 11-2
A bank's assets consist of $1 000 000 in total reserves, $2 100 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $3 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-2.If the desired reserve ratio is 10 percent,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?

• A)Excess reserves are $700 000 and could be used to create $700 000 in the banking system.
• B)Excess reserves are $300 000 and could be used to create $3 000 000 in the banking system.
• C)Excess reserves are $300 000 and could be used to create $300 000 in the banking system.
• D)Excess reserves are $700 000 and could be used to create $7 000 000 in the banking system.

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Definitions:

Manufacturing Costs

The total expense involved in the creation of a product, including raw materials, labor, and overhead costs.

Departments

Divisions within an organization, each responsible for specific functions or tasks.

Departmental Predetermined Overhead Rates

Rates calculated in advance for each department, used to assign overhead costs based on estimated activity levels.

Machine-Hours

A measure of the total time that machines are operating, often used as a basis for allocating manufacturing overhead costs.