If a Bank Has a Required Reserve Ratio of 10%,excess

question 21

Multiple Choice

If a bank has a required reserve ratio of 10%,excess reserves of $10,000,000,and deposits of $500,000,000,how much can the bank lend out?

• A) $10,000,000
• B) $40,000,000
• C) $50,000,000
• D) $100,000,000
• E) $510,000,000

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Definitions:

Variable Costing

An accounting method that only allocates variable costs to inventory, treating fixed costs as period expenses that are charged to the income statement in the period they are incurred.

Absorption Costing

A method of inventory costing that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overheads - in the cost of a unit of product.

Contribution Format

A financial statement layout that separates fixed costs from variable costs to highlight the contribution margin of a business.

Absorption Costing

A financial tracking method that brings together all costs of production—direct materials, direct labor, and all overhead, both variable and fixed—inclusion in the price of a product.