Answer the Question on the Basis of the Following Information

question 52

Multiple Choice

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion;legal reserve ratio = 0.20;excess reserves prior to the currency deposit = $0. Refer to the information.With the $40 billion deposit,the banking system will be able to expand the money supply through loans by:

• A) $160 billion.
• B) $200 billion.
• C) $40 billion.
• D) $128 billion.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations, calculated as current assets divided by current liabilities.

Current Assets

Short-term assets that are expected to be converted into cash, sold, or consumed within one year or the business's operating cycle, whichever is longer.

Market Value

The existing rate at which an asset or service might be sold or acquired in the trading space.

Replacement Cost

The current cost of replacing an asset with a new asset of similar kind and quality, often used in insurance and accounting.