QUESTION 26 A liquid asset is: O A gold and only gold o B. an asset that can be

Question

QUESTION 26 A liquid asset is: O A gold and only gold o B. an asset that can be used for payments, or can quickly and without loss of value be converted to an asset that can be used for payments O C an asset that cannot be used for payments, or can quickly and without loss of value be converted to an asset that can be used for payments D. a very narrowly accepted means of payment. QUESTION 27 If the reserve ratio is 4%, the money multiplier is: B. 4 o C 20 D 16 QUESTION 28 Bank A has $100 million in deposits, $15 million in required reserves in loans. Bank A's reserve ratio is A 15%. B20% C 75% [D 10%

Explanation / Answer

1) A liquid asset is

Solution: an aseet that can be used for payments, or can quickly and without loss of value be converted to an asset that can be used for payments

Explanation: A liquid asset or security can be easily converted into cash for payments without loss of value

2) Bank A has $100 million in deposits, 15 million in required reserves and $85 in loans. Bank A's reserve ratio is

Solution: 15

Working: 15/100 *100 = 15%

3) If the reserve ratio is 4%, the money multiplier is

Solution: 25

Working: Money Multiplier = 1 / Reserve Ratio = 1/0.04 = 25

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