If a Bank That Faces a 25% Reserve Ratio Received

question 121

Multiple Choice

If a bank that faces a 25% reserve ratio received a deposit of $30,000 and makes a loan to a customer for $10,000,what is the consequence if the bank then deposits the rest of the funds at the Federal Reserve?

• A) Excess reserves increase by $30,000.
• B) Excess reserves increase by $20,000 and required reserves increase by $10,000.
• C) Excess reserves increase by $12,500 and required reserves increase by $7,500.
• D) Required reserves increase by $17,500.
• E) Reserves are not affected.

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Definitions:

Direct Material Cost

The cost of raw materials and components that are directly used in the production of a product.

Labor Quantity Variance

The difference between the actual hours worked and the standard hours allowed for the work performed, multiplied by the standard hourly wage rate.

Produced

The completed output of goods or services as a result of manufacturing or production processes.

Materials Price Variance

The difference between the actual cost of materials used in production and the expected (or standard) cost of those materials.