The Basic Reason Why the Chartered Banking System Can Increase

question 66

Multiple Choice

The basic reason why the chartered banking system can increase its demand deposits by a multiple of its excess reserves is that:

• A)reserves lost by any particular bank will be gained by some other bank.
• B)the central banks follow policies that prevent reserves from falling below the level required by law.
• C)the MPC of borrowers is greater than zero, but less than 1.
• D)the banking system must keep reserves equal to 100 percent of its demand-deposit liabilities.

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Definitions:

Cost Allocation

The process of assigning indirect costs to different departments, products, or cost objects within a company.

Asset Devaluation

Asset devaluation refers to a reduction in the value of an asset over time, often due to changes in market demand or obsolescence.

Declining-Balance

A method of accelerated depreciation in which an asset loses value by a certain percentage rate each year over its useful life.

Depreciable Cost

The cost of a fixed asset minus its salvage value, representing the total amount that can be depreciated over its useful life.