Assuming Initially That R = 15%,c = 40%,and E =

question 22

Multiple Choice

Assuming initially that r = 15%,c = 40%,and e = 5%,an increase in e to 10% causes the M1 money multiplier to ________,everything else held constant.

• A)increase from 2.15 to 2.33
• B)decrease from 2.33 to 2.15
• C)increase from 1.54 to 1.67
• D)decrease from 1.67 to 1.54

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Definitions:

Retained Earnings

Retained earnings represent the cumulative amount of net income retained in the company rather than distributed to shareholders as dividends.

Dividends Payable

A financial accounting term referring to the declared dividends to be paid to a corporation's shareholders out of current or retained earnings.

Legal Capital Approach

A method of accounting that maintains capital at a certain legal minimum to protect creditors.

Ownership Equity

The owners' residual interest in the assets of a company after deducting liabilities, also known as shareholders' equity or stockholders' equity.