If Proceeds from Loans Are NOT Deposited Back in the Banking

question 332

Multiple Choice

If proceeds from loans are NOT deposited back in the banking system, then

• A) the magnitude of the multiplier process is reduced.
• B) there is no effect on the magnitude of the multiplier process.
• C) the magnitude of the multiplier process is increased.
• D) the Fed intervenes by selling more Federal government bonds.

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Definitions:

Accrued Expense

Expenses that are recognized on the books before they have been paid, reflecting costs incurred during a particular period.

Adjusting Entry

An accounting record made to allocate income and expenditures to the appropriate accounting periods.

Interest Payable

Accrued interest that a company owes to its creditors or on its debts but has not yet paid.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time.