If the Federal Reserve Increases the Interest Rate on Bank

question 196

Multiple Choice

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

• A)fewer reserves, so the reserve ratio will fall.
• B)fewer reserves, so the reserve ratio will rise.
• C)more reserves, so the reserve ratio will fall.
• D)more reserves, so the reserve ratio will rise.

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Definitions:

Additional Costs

Expenses that are not originally planned or budgeted, arising unexpectedly during the production or execution process.

Joint Cost

The cost of the input and process that yields two or more products in fixed proportions as a result. For example, the cost of the barrel of oil and of splitting it into gasoline and motor oil is a joint cost.

Service Departments

Refers to the divisions or units within an organization that provide support services to the production or operational departments rather than directly producing goods or services.