If the Required Reserve Ratio Is 10 Percent and a Bank

question 141

Multiple Choice

If the required reserve ratio is 10 percent and a bank receives a new deposit for $100,000,then the:

• A)bank must keep $5,000 in excess reserves.
• B)bank's required reserves increase by $45,000.
• C)bank's liabilities increase by $100,000.
• D)bank can increase its loans by up to $50,000.
• E)bank can increase its loans by up to $400,000.

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Definitions:

Wholesale Segment

The part of a market that deals with the sale of goods in large quantities at lower prices, typically to retailers who then sell to end consumers.

Fixed Expenses

Costs that do not fluctuate with changes in production volume or sales, such as rent, insurance, and salaries.

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product cost calculations, excluding fixed manufacturing overhead.

Absorption Costing

A method of costing that includes all manufacturing costs - direct materials, labor, and both variable and fixed overhead - in the cost of a product.