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Suppose the Required Reserve Ratio Is 10% and a Depositor

question 363

Multiple Choice

Suppose the required reserve ratio is 10% and a depositor withdraws $500 from her chequable deposit.The money supply will _____ if the banking system does NOT hold any excess reserves.


Definitions:

After-Tax Cost

The after-tax cost is the net cost of a transaction, investment, or other financial activity after taking into account the effect of taxes.

Debt-Equity Ratio

Measures a company's financial leverage calculated by dividing its total liabilities by stockholders' equity.

Pre-Tax Cost

The expense or cost incurred by an entity before taxes have been deducted.

Unlevered Cost

The cost of an investment or project assuming no debt is used to finance the investment; reflecting its cost of capital without leverage.

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