After the Central Bank Increases Reserves in the Banking System

question 104

Multiple Choice

After the central bank increases reserves in the banking system through open-market purchases,banks create new deposits through multiple rounds of lending and accepting deposits until the

• A) central bank requires them to stop.
• B) reserve-deposit ratio reaches one-half.
• C) actual reserve-deposit ratio is greater than the desired reserve-deposit ratio.
• D) actual reserve-deposit ratio is equal to the desired reserve-deposit ratio.
• E) actual reserve-deposit ratio is less than the desired reserve-deposit ratio.

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Definitions:

Carrying Cost

The total cost of holding inventory, including storage costs, insurance, and depreciation, among others.

Economic Order Quantity Model

A formula used in inventory management to determine the optimal order size that minimizes total inventory costs.

Holding Cost

The expenses associated with keeping inventory in stock, such as storage, insurance, and spoilage costs.

Economic Order Quantity

A formula used to determine the most cost-effective quantity to order, balancing ordering costs with holding costs.