If a Bank Uses $200 of Excess Reserves to Make

question 33

Multiple Choice

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent,this action by itself initially makes the money supply

• A)and wealth increase by $200.
• B)and wealth decrease by $200.
• C)increase by $200 while wealth does not change.
• D)decrease by $200 while wealth decreases by $200.

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Definitions:

External Financing Needed

The amount of funding that a company must seek from external sources to finance its planned activities or investments, beyond what it can generate internally.

Capital Intensity Ratio

A measure of how much capital is used in relation to labor in the production process of a company.

Return on Assets (ROA)

A profitability ratio calculated by dividing net income by total assets, indicating how efficiently a company is using its assets to generate profit.

Percentage of Sales Approach

A method for forecasting financial needs based on the proportion of sales expected in the future.