When the Required Reserve Ratio Is Changed

question 231

Multiple Choice

When the required reserve ratio is changed,

• A) the money multiplier is changed but the amount of excess reserves in the banking system is unchanged.
• B) the money multiplier is unchanged but the amount of excess reserves in the banking system is changed.
• C) the size of the money multiplier and the amount of excess reserves change in the opposite direction from the required reserve ratio.
• D) the size of the money multiplier and the amount of excess reserves change in the same direction as the required reserve ratio.
• E) neither the money multiplier nor the amount of excess reserves change.

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Definitions:

Common Shareholders' Equity

The portion of a company's equity that is attributable to common shares, representing the residual interest in the net assets of the company.

Return on Assets

A profitability ratio that measures how efficiently a company uses its assets to generate profit, calculated by dividing net income by total assets.

Debt to Total Assets

A financial ratio that shows the proportion of a company's assets that are financed through debt.

Basic Earnings per Share

A measure of a company's profitability, calculated by dividing net income by the number of outstanding common shares.