The Reason That the Commercial Banking System Can Generate a Multiple

question 231

Multiple Choice

The reason that the commercial banking system can generate a multiple expansion or contraction of the money supply is that

• A) banks are required to hold only a fraction of their deposit liabilities as reserves.
• B) most banks maintain a relatively large stock of reserves.
• C) banks hold reserves equal to their net worth.
• D) banks generally are required to hold surplus funds on deposit with other banks.

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Definitions:

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the average cost of all items available for sale.

Weighted-Average Method

An inventory costing method in which the cost of goods available for sale is divided by the total units available for sale, resulting in a weighted average cost per unit.

Process Costing System

An accounting system used to accumulate costs in industries where production is continuous and units are indistinguishable from one another.

Conversion Costs

Costs required to convert raw material into finished goods, primarily comprising labor and overhead expenses.