Suppose That the Banking System Currency Has No Excess Reserves

question 51

Multiple Choice

Suppose that the banking system currency has no excess reserves and that a bank receives a deposit into a checking account of $10,000 in currency. If the required reserve ratio is 0.20, what is the maximum amount that the banking system can lend out?

• A)$8000
• B)$10,000
• C)$40,000
• D)$50,000

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Definitions:

Cash Operating Costs

Expenses a company incurs during its day-to-day operational activities that require cash payment.

Automating

The process of using technology to perform tasks without human intervention, often resulting in increased efficiency and reduced error.

Payback Period

The time it takes for an investment to generate cash flows sufficient to recover its initial cost.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal annual amounts.