Assume That the Commercial Banking System Has Checkable Deposits of $10

question 157

Multiple Choice

Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent.If the reserve requirement is now raised to 30 percent, the banking system then has

• A)excess reserves of $2 billion.
• B)neither an excess nor a deficiency of reserves.
• C)a deficiency of reserves of $.5 billion.
• D)excess reserves of only $.5 billion.

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Definitions:

Cash Inflow

Money received by a business from various sources including sales, investments, financing, and more.

Indirect Method

A method of preparing a statement of cash flows in which net income is adjusted for items that do not affect cash, to determine net cash provided by operating activities.

Accounts Receivable

Amounts owed to a business by its customers for goods or services that have been delivered or used but not yet paid for.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenues.