Answer:
C) the market price falls below $170 per unit.
Explanation:
If this firm is a price taker, it means that it is operating in a perfect competition market. In such markets, since the entry and exit barriers are very low or nonexistent, if the equilibrium price falls below the variable cost, the firms should halt production in the short run until the equilibrium price rises again. The firm should resume production only after the equilibrium price exceeds the variable costs.
This situation is only applicable on the short run. On the long run the firm should only produce if the equilibrium price is greater or equal to its marginal cost.
Mark wants to determine whether a specific company has become more profitable over time. Mark should compare the company's performance to:______________.
Answer: industry average
Explanation: In simple words, industry average refers to the data that is presented by some institution depicting the performance of all the firms in the industry as a whole with respect to factors like profitability, leverages and growth.
To compare a company's performance over time it is best to compare it with industry average as usually it is difficult to find a competitor whose market conditions are similar to one another.
Thus, for over the period performance analysis it is best to use industry average.
Refer to Pure Training, Inc. If clients (the business owners) were asking for workshops to allow their customers to listen to audio files about their product or service, Pure Training would be organizing ____ workshops.A. blogB. podcastC. social content siteD. social gameE. forum
Answer: Podcast
Explanation: In simple words, podcast refers to a digital audio file that is uploaded on the internet and can be easily downloaded through a computer or mobile device.
A podcast is used for many purposes like for reading of novels or for educational seminars etc. Sometimes companies also use podcast for advertisements or promotional purposes when the target audience is low in volume and mass media mediums are of no use.
Hence from the above we can conclude that the correct option is B.
Pure Training, Inc. would organize podcast workshops for clients who want their customers to listen to audio files discussing their products or services. Podcasts, being a form of digital media which includes audio files on topics of interest, are the best way to address this request.
Explanation:If clients were asking for workshops that allow their customers to listen to audio files about their products or services, Pure Training, Inc. would be organizing podcast workshops. A podcast workshop would best suit this request because podcasts are a form of digital media in which audio files that you can listen to are included. These files can be conveniently downloaded or streamed to learn about a particular topic, in this case, a business's product or service. Hence, customers can gain more in-depth knowledge about the products or services at their own time and pace through the podcast workshops.
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Daniel's workplace has no structured hierarchy, and all employees are treated equally regardless of their designations or roles in the organization. According to the CSV dimension, this is an example of an organization low in _____.
a. individualism
b. masculinity
c. power distance
d. uncertainty avoidance
e. long-term orientation
According to the CSV dimension, the given is an example of an organization low in individualism.
Option - a
Explanation:
Some organizations motivate workers to think for themselves. Others demonstrate teamwork and relations between people.
For example, people in the US are trained to depend on themselves and to take decisions themselves. This is called individualism.
Organizations that accept individualistic principles instead of recognizing the efforts of the group recognize employees for their particular skills.
As per a survey, more and greater numbers of people are looking for their individual characteristics and skills and just want to be honored.
An individualized culture encourages creativity and innovation in the work environment and encourages employees to do the best they can.
Urban Window Company had gross wages of $320,000 during the week ended July 15. The number of wages subject to social security tax was $320,000, while the number of wages subject to federal and state unemployment taxes was $40,000. Tax rates are as follows:
Social security Medicare State unemployment Federal unemployment 6.0% 1.5% 5.4% 0.6% The total amount withheld from employee wages for federal taxes was $75,200. For a compound transaction, if an amount box does not require an entry, leave it blank. a. Journalize the entry to record the payroll for the week of July 15 b. Journalize the entry to record the payroll tax expense incurred for the week of July 15.
Answer:
wages expense 320,000 debit
cash 218,400 credit
FICA tax payable 2,160 credit
SUTA tax payable 240 credit
Social security payable 24,000 credit
wages income tax payable 75,200 credit
--to record July 15th payment to employees wages--
payroll tax expenses 26,400 debit
FICA tax payable 2,160 credit
SUTA tax payable 240 credit
Social security payable 24,000 credit
---to record the payroll tax for the week ended July 15th--
Explanation:
We multiply the wages subjet to taxation by each rate:
social security:
320,000 x 7.5% = 24,000
SUTA
40,000 x 5.4% = 2,160
FICA
40,000 x 0.6% = 240
For this three concepts, the employee will have liability for the same amount for payroll taxes
Income tax 75,200
net wages: 320,000 - 24,000 - 2,160 - 240 - 75,200 = 218,400
The level of liquid assets that should be invested in marketable securities depends on several factors. This includes all except which of the following?
a. The variability of the firm's cash flows
b. Transaction costs involved in buying and selling the securities
c. Seasonal cash requirements d. Interest to be earned over the expected holding period
Answer:
c.
Explanation:
Based on the information provided within the question it can be said that the exception of the answers provided are seasonal cash requirements. This refers to the amount of cash you or the company needs to pay for unique expenses during a specific season. Which is not a factor when deciding what should be invested in marketable securities.
Safety is a key concern at most industries, but it is especially important at BigBoom Fireworks Factory. Employees must use carefully standardized procedures for packing fireworks to prevent unwanted explosions.
This is an example of _________ control.
A. concurrent
B. feedforward
C. bureaucratic
D. none of above
Answer: (C) Bureaucratic control
Explanation:
The bureaucratic control is one of the type of t-down control and it uses various types of policies, documentation, rules and the reward system for influencing the behavior of an employee in an organization for assess the performance.
The bureaucratic control are basically controlled by the market mechanisms. By using the bureaucratic control, the managers in an organization influence their employees either punishing them or rewarding them for their performance.
Therefore, Option (C) is correct.
The correct answer is B. feedforward control.
Feedforward control is a type of management control that involves taking corrective action before any variance occurs. In the context of the BigBoom Fireworks Factory, the careful standardization of procedures for packing fireworks is a proactive measure to prevent accidents and ensure safety. This means that the process is designed to detect and correct potential issues before they lead to an unwanted explosion, which is a classic example of feedforward control.
Let's consider the other options to understand why they are not the correct choice:
A. Concurrent control: This type of control is exercised during the execution of a process. It involves monitoring activities while they are happening and making immediate adjustments as necessary. While concurrent control is important in many processes, the question specifically describes a proactive approach to safety, which is more aligned with feedforward control.
C. Bureaucratic control: This refers to the use of rules, regulations, and formal structures to control the behavior of individuals within an organization. Although bureaucratic control can be part of ensuring safety, it is more about the overall structure and governance of an organization rather than the specific control mechanism used in a process like packing fireworks.
D. None of the above: This option suggests that none of the given control types apply to the situation. However, as explained, feedforward control is the most appropriate choice given the proactive nature of the safety measures described in the question.
Therefore, the most suitable answer to the question is B. feedforward control, as it accurately describes the proactive and preventive approach to safety at the BigBoom Fireworks Factory.
What is the difference between a budget and a standard?
a) A budget is the cost of an item at a static activity level, while a standard is based on a flexible activity level.
b) A budget is a total amount, while a standard expresses only a unit amount.
c) A budget is the amount planned, while a standard reflects the actual results. d) There is no difference, they are the same.
Answer:
B
Explanation:
Standard is used for unit projection and unit prices of a product, while Budget is used for total projection in both price and Total units of a product.
A budget is a total amount used for planning and control, while a standard is a unit amount used for performance evaluation and improvement.
Explanation:A budget and a standard are two different concepts in management accounting.
A budget represents the financial plan for a particular period of time, usually expressed in monetary terms. It outlines the expected income and expenses for the organization. It is a total amount and can be used for planning, control, and performance evaluation.
On the other hand, a standard represents a predetermined level of performance or cost that should be achieved. It is usually expressed per unit of output. For example, a standard could be the expected cost per unit of production or the expected time to complete a task. Standards are used to measure actual performance against the expected level and identify areas of improvement.
In summary, the difference between a budget and a standard is that a budget is a total amount used for planning and control, while a standard is a unit amount used for performance evaluation and improvement.
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The process of developing and using systems to ensure that funds are spent for the purpose for which they have been appropriated is referred to as _________.
A. Technical Resource Management
B. Financial Management
C. Human Resource Management
D. Accounting Management
Answer: Financial Management.
Explanation: Financial management can be explained as the measures put in place by an organization to properly assign funds accordingly to areas where it is needed.
Financial Management makes use of financial information monitoring applications to track the cash flow to various areas of need in the organization.
The accounting department of the organization are in charge of finance management supervision.
An actionable segment is one that A.allows the marketing mix to operate.B. has resources to purchase the product.C. perceives that the product line is useful.D. can be moved through advertising.
Answer:
a. allows the marketing mix to operate
An actionable segment is a market subset that can be effectively targeted with a consistent marketing mix. It must have the purchase power, find the product useful, and be responsive to advertising to be deemed actionable.So,option A is correct.
An actionable segment is an essential concept in marketing that refers to a subset of the market that a company can effectively target with its marketing mix. The marketing mix is composed of decisions about price, promotional activities, location, and sales channels, which all need to be consistent to be effective. An actionable segment must meet several criteria, such as having the resources to purchase the product, finding the product line useful, and being responsive to advertising efforts.
Advertising is a means of increasing the likelihood a firm's product or service is among those actually considered by consumers. When planning a marketing strategy, it's important to identify segments that can be distinguished and targeted with a customized mix of the four Ps: product, price, place, and promotion. Only then can a segment be considered actionable when it is capable of being effectively reached and influenced through these marketing efforts.
Several national religious organizations have used sport to attract young athletes and help them learn about a given religion. What is not an example of such an organization?
Answer:
The answer is Jocks for Jesus.
Explanation:
Jock for Jesus.
On July 1, 2018, Mason & Beech Services issued $48,000 of 9% bonds that mature in five years. They were issued at par. The bonds pay semiannual interest payments on June 30 and December 31 of each year. On December 31, 2018, what is the total amount paid to bondholders?
Answer:
December 31th, 2018 the bondholder will receive $ 2,160
Explanation:
The bondholders will get the face value times the bond rate:
In this case:
$ 48,000 principal
9% = 9/100 = 0.09 annual rate = 0.09/2 = 0.045 coupon rate
We divide by 2 as there is two payment per year thus, the principal capitalize for 6 month over a total of 12 between payments.
bonholders payment:
principal x semiannual rate:
$ 48,000 x 0.045 = $ 2,160
In the leadership of both parties in Congress, certain members are responsible for legislative strategy, building support and coalitions for key issues, and informal vote counting. What is this role called?
Answer:
The correct answer is Whip.
Explanation:
The whip is an officer in a political party whose main purpose is to ensure party discipline in a legislature. Whips are "executors" of a party, which typically offer incentives and threaten party members to ensure they vote according to official party policy. Role of a whip is also to ensure that the elected representatives of your party are present when important votes are taken. The use comes from the term hunting "whipping," that is, prevention of hounds from wandering away from the pack.
Which of the following statements is a positive statement? Which is a normative statement?
a. The federal minimum wage is increasing to $6.50 an hour.
b. The minimum wage should be high enough that families will not live in poverty.
Answer:
A positive statement seeks to describe or explain something based on empirical evidence, while a normative statement seeks to recommend something, or to express a subjective opinion.
a. The federal minimum wage is increasing to $6.50 an hour. - Positive statement. It is stating a fact, not telling us whether this rise in the minimum wage is good or bad.
b. The minimum wage should be high enough that families will not live in poverty. - This is a classical normative statement. It is giving an opinion, and recommending a policy.
A positive statement describes facts or the way things are, while a normative statement expresses an opinion or value judgment.
Explanation:A positive statement is a statement that describes facts or the way things are. It can be tested and proven true or false. An example of a positive statement A: The federal minimum wage is increasing to $6.50 an hour.
A normative statement, on the other hand, is a statement that expresses an opinion or makes a value judgment. It cannot be tested or proven true or false. An example of a normative statement is: The minimum wage should be high enough that families will not live in poverty.
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A payroll company in the nation of Antono is seeking to expand beyond its borders while limiting administrative and political distance in the new country. Which potential site is the best one for this type of expansion?
Answer:
Usually when companies plan to expand their activities to foreign nations, they will seek to do it in places that traditionally had long relationships with their home country. If Antono is located in either South or Central America then the company should try to expand to either one of its direct neighbors or Spain (or some other European country that has a strong relationship with them).
Most countries in the Americas had colonial relationships with their neighbors or some European country. For example, the US first trading partner was the UK and when American companies want to do business in Europe they established themselves in the UK.
Final answer:
The most suitable expansion site for the payroll company is one with a historical relationship with Antono, likely easing business operations due to cultural and linguistic ties. The other options may introduce regulatory, trade, or market challenges that the company wishes to avoid.
Explanation:
When seeking to expand a payroll company internationally with minimal administrative and political resistance, the most suitable location would typically be a country with a stable political environment, existing infrastructure for business services, and a workforce skilled in the services required.
Keeping this in mind, a location that used to have a colonizer or colonized relationship with Antono (option d) might be fitting, especially if there are linguistic and cultural ties that would ease business communication and operations. Additionally, selecting a country that has participated in trading blocs with Antono could provide smoother trade relations.
Options a, b, and c present challenges such as an overly protective business environment, which might lead to stringent regulations (option a), barriers to trade in the form of tariffs and quotas (option b), or potential market isolation if outside of any trading blocs (option c). These could all introduce additional complexity and costs that the payroll company is seeking to avoid.
It's important to also consider that locating in a country with low employment costs and a skilled labor force, much like the outsourcing trends seen in the Philippines, would provide operational advantages. Historical ties, like those the Philippines has with the United States, can be beneficial in creating a favorable business environment as well.
Jan Throng invested $39,000 in the Invesco Charter mutual fund. The fund charges a commission (load) of 4.5 percent when shares are purchased. Calculate the amount of commission (load) Jan must pay
Answer:
amount of commission (load) Jan must pay is $1755
Explanation:
given data
investment = $39,000
charges commission (load) = 4.5 percent
to find out
Calculate the amount of commission (load) Jan must pay
solution
we get amount of commission will be here as
amount of commission = investment × charges commission % ......................1
put here value we will get
amount of commission = $39000 × 4.5%
amount of commission = $39000 × 0.045
amount of commission = $1755
so amount of commission (load) Jan must pay is $1755
The encoding of words and their meaning is known as ________ encoding.
Encoding is the process of inputting information into the memory system. Different types of encoding exist, and the encoding of words and their meaning is called semantic encoding. Another type is acoustic encoding, which deals with the sounds that words make.
Explanation:The process of inputting information into the memory system is called encoding. There are various types of encoding, among which the encoding of words and their meaning is referred to as semantic encoding. This was exemplified in an experiment by William Bousfield in 1935, during which participants were found to remember words in categories based on their meaning, proving that they paid attention to the meanings of the words as they learned them.
Another type of encoding is acoustic encoding, which is remembering the sounds that words make. For example, children often learn the alphabet and the number of days in each month through song or rhyme, a mechanism facilitated by acoustic encoding. In essence, encoding functions to organize perceived information with already known concepts to facilitate recall.
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The asset's book value is $70,000 on June 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:____________
a) $8,125.00
b) $7,375.00
c) $4,062.50
d) $3,750.00
e) $7,812.50
Answer:
The correct answer is C that is $4,062.50
Explanation:
The depreciation expense is computed as:
Depreciation expense = Book Value of asset - Salvage Value / Number of years × 6/ 12
where
Book value is $70,000
Salvage value is $5,000
Number of years is 8 because it is Year 3
Number of months is 6 months
= $70,000 - $5,000/ 8 × 6/ 12
= $65,000 / 8 × 6/ 12
= $8,125 × 6/ 12
= $4,062.50
Which of the following is correct?
A) In unionized industries, wages are below the level that would prevail in competitive markets.
B) The introduction of a union in an industry reduces the quantity of labor demanded in that industry, causes some workers in that industry to be unemployed, and reduces wages in the rest of the economy.
C) There is a strong consensus among economists that unions are bad for the U.S. economy.
D) All of the above are correct.
Answer: There is a strong consensus among economists that unions are bad for the U.S. economy.
Explanation: A union is a group formed by employees of an establishment or workers of the government whose duty is to fight for improved working conditions of its members.
A union can sometimes make unrealistic demands to their employers and also unions tend to shut down economic activities of their sector of operation, if their demands are not met. These factors makes unions partly an economical disadvantage.
Consider a perfectly competitive market in which all firms have the same costs. Choose the statement that is incorrect.
A. The market supply curve is upward sloping at prices above the firm's shutdown price.
B. Each firm takes the market price as given and produces its profit-maximizing output.
C. In the short run, a firm cannot incur an economic loss.
D. Market demand and market supply determine the market price and market output.
Answer and Explanation:
C. In the short run, a firm cannot incur an economic loss.
During November, the production department of a process operations system completed and transferred to finished goods 31,000 units that were in process at the beginning of November and 130,000 units that were started and completed in November. November's beginning inventory units were 100% complete with respect to materials and 55% complete with respect to conversion. At the end of November, 27,000 additional units were in process in the production department and were 100% complete with respect to materials and 70% complete with respect to conversion. Compute the number of equivalent units with respect to materials for November using the weighted-average method.
Answer:
188,000 units
Explanation:
For computing the equivalent units for material cost, first we have to compute the transferred units which is shown below:
= Beginning finished good inventory units + units started and completed units
= 31,000 units + 130,000 units
= 161,000 units
Now the equivalent units for material costs equal to
= Transferred units × percentage of completion + additional units in process × percentage of completion
= 161,000 units × 100% + 27,000 units ×60%
= 161,000 units + 27,000 units
= 188,000 units
On December 1, Flint Electronics has three DVD players left in stock. All are identical, all are priced to sell at $77. One of the three DVD players left in stock, with serial #1012, was purchased on June 1 at a cost of $47. Another, with serial #1045, was purchased on November 1 for $43. The last player, serial #1056, was purchased on November 30 for $36.
Calculate the cost of goods sold using the FIFO periodic inventory method, assuming that two of the three players were sold by the end of December, Flint Electronics' year-end.
The cost of goods sold using the FIFO ______.
Answer: $90
Explanation: closing stock as at November ending is 3, consisting of:
1 DVD bought on 1st June @ $47
1 DVD bought on 1st Nov @ $43
1 DVD bought on 30th Nov @ $36
using FIFO (First in first Out) inventory method, 2 of the DVD was sold as at the end of December.
Cost of goods sold in the month of December is $47 +$43 = $90
Calculating Residual Income
Barnard Manufacturing earned operating income last year as shown in the following income statement:
Sales $4,000,000
Cost of goods sold 2,100,000
Gross margin $1,900,000
Selling and administrative expense 1,100,000
Operating income $800,000
Less: Income taxes (@ 40%) 320,000
Net income $480,000
At the beginning of the year, the value of operating assets was $2,700,000. At the end of the year, the value of operating assets was $2,300,000.
Barnard requires a minimum rate of return of 15%.
Required:
Calculate:
1. Average operating assets $______
2. Residual income $_______
Answer:
1) $2,500,000
2) $425,000
Explanation:
1)
The Average Operating Assets is given using the formula
= (Beginning Operating Assets + Ending Operating Assets) ÷ 2
on substituting the values from the question, we get
⇒ Average Operating Assets = (2,700,000 + 2,300,000) ÷ 2
⇒ Average Operating Assets = 5,000,000 ÷ 2
⇒ Average Operating Assets = $2,500,000
2)
The Residual Income is calculated as:
= Operating Income - (Minimum Rate of Return × Average Operating Assets)
on substituting the values from the question, we get
⇒ Residual Income = $800,000 – (15% × $2,500,000)
⇒ Residual Income = $800,000 - $375,000
⇒ Residual Income = $425,000
Linda purchases property in Escambia County from Susan. Linda has $30,000.00 as a down payment and gets a mortgage in the amount of $150,000.00 and there is no other consideration for the transfer. How much will the doc stamp tax on the deed be?
Answer:
$1,260
Explanation:
First of all, Linda's base for any taxes will be the total transaction cost = $30,000 + $150,000 = $180,000
The we must calculate the $100 taxable units = $180,000 / $100 = 1,800 units
Since Escambia County is located in Florida, we must use Florida's documentary stamp tax of $0.70 per taxable unit (floridarevenue.com):
doc tax due = 1,800 taxable units x $0.60 per taxable unit = $1,260
When economists determine that a nation’s gdp has declined
Answer:
The correct answer is economic shrinkage.
Explanation:
An economic contraction is a general reduction of goods and services in a market. It is typically related to a recess in production caused by external factors, such as weather conditions, or by internal factors, such as taxes, high regulation and other impacts on producers' incentives.
Both the contraction and economic expansion have to do with the cycles of global production of goods in an economy, while inflation and deflation refer to the exchange rate appreciation cycle.
Liyun owns a small flower shop, and the industry is perfectly competitive. She is considering whether to hire an additional worker. The wage rate for the worker is $500 per week; the marginal product of the additional worker would be 100 units per week; and the price of the units is $10 each. Liyun should: Select one: a. raise the price of the flower arrangements that she sells. b. not hire the additional worker. c. hire the additional worker. d. Not enough information is given to answer the question
Answer:
C) hire the additional worker.
Explanation:
The marginal revenue generated by the additional employee is $1,000 (= 100 units x $10 per unit), while the marginal cost of hiring the additional employee is only $500. Since the marginal revenue is greater than the marginal cost ($1,000 > $500), then Liyun should hire the additional employee.
According to John Maynard Keynes:
a. the economy would automatically adjust to full employment in the long run.
b. aggregate expenditures (demand) can be forever inadequate to achieve full employment.
c. neither aggregate demand nor aggregate supply is a determinant of full-employment real GDP.
d. aggregate output (supply) can be forever inadequate to achieve full employment.
Answer:
b. aggregate expenditures (demand) can be forever inadequate to achieve full employment.
Explanation:
According to John Maynard Keynes aggregate expenditures (demand) can be forever inadequate to achieve full employment.
Which statement concerning human resource management (HRM) is FALSE?
A. High-performance work practices improve a firm's ability to adapt to changing markets.
B. HRM is a major source of competitive advantage.
C. HRM is important in U.S. firms but insignificant in foreign firms.
D. The way that firms treat their employees impacts organizational performance.
E. HRM is a key component of organizational strategies.
Answer:
C. HRM is important in U.S. firms but insignificant in foreign firms.
Explanation:
Option A: With the help of HRM, it is possible to improve a firm's ability to adapt to changing markets.
B: If a company has skilled human resources, the company can gain competitive advantage.
D: Again, skilled emoyees mean positive organizational performance.
E: Among the components, Human resource is one of the key components for an organization to set up.
All the answers are correct regarding HRM.
On the other hand, Human Resource is not only significant for the U.S firms but also important for all the firms across the world. Therefore, the answer "C" is wrong regarding the HRM.
Brenda owns a store in a small town. The store sells a small range of everyday and impulse products, such as chocolates, magazines, novelties, and snacks. The store remains open seven days a week from 08:00 a.m. to 12:30 a.m. Brenda's store can be categorized as a(n) _____.A. department storeB. convenience storeC. outlet storeD. specialty store
Answer:
B. convenience store
Explanation:
A convenience store is a retail store that sells a small range of everyday and impulse products.
A speciality store is a retail store that sells specific types of products. E.g. pharmacies
An outlet store is owned by a manufacturer of a product, the manufacturer sells only its product in this store.
A department store is a retail store that sells a large variety of consumer products.
Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $3,300. The division sales for the year were $1,053,000 and the variable costs were $863,000. The fixed costs of the division were $196,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:
(A) $190,000 decrease
(B) $190,000 increase
(C) $58,800 decrease
(D) $55,500 decrease
(E) $131,200 decrease
Answer:
$133,900 decrease
Explanation:
Since the mountain bike division's total fixed costs are $196,000, and only 30% can be eliminated, then the rest of the company will absorb $137,200 in fixed costs.
Since the division has an operating loss of $3,300, then that would be saved.
Total impact on income = - $137,200 + $3,300 = -$133,900
*I believe one amount is wrong, the operating loss was $6,000, not $3,300 (= $1,053,000 - $863,000 - $196,000 = -$6,000). If we calculate the impact with an operating loss of $6,000, then the net effect would be a $131,200 decrease (option E)
If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system and banks have a desired reserve/deposit ratio of 0.20, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.
Answer:
$4,000$5,000Explanation:
First we have to determine the money multiplier of Macroland:
money multiplier = 1 / 0.2 = 5If $1,000 are deposited in banks and the banks have a 20% reserve ration, they will be able to lend $800. The $800 will then increase to $4,000 (= $800 x 5) because of the money multiplier.
The total increase in the money supply is given by the $1,000 deposited originally and the $4,000 in increased loans = $5,000
Final answer:
If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system and banks have a desired reserve/deposit ratio of 0.20, then the banks will eventually make new loans totaling 4,000 dollars and the money supply will increase by 5,000 dollars.
Explanation:
When the Central Bank of Macroland injects an additional 1,000 dollars into the economy with a reserve/deposit ratio of 0.20, banks can eventually make new loans totaling 4,000 dollars, increasing the money supply by a total of 5,000 dollars.
The key to understanding this question is the concept of the money multiplier effect in the banking system. When banks receive deposits, they keep a portion as reserves to satisfy withdrawal demands and lend out the remainder. The reserve ratio dictates how much must be kept in reserve compared to the total deposits. In this case, a 20% reserve deposit ratio (0.20) is mentioned.
This ratio implies that for every dollar deposited, 20 cents must be kept as a reserve, and the remaining 80 cents can be lent out.
The money multiplier formula in this context is 1/reserve requirement ratio, which in this scenario is 1/0.20 = 5. This means that for every dollar of reserves, the banking system can expand the money supply by up to 5 dollars.
Given the Central Bank injects 1,000 dollars and considering the money multiplier of 5, the total increase in the money supply can reach 5,000 dollars (1,000 dollars × money multiplier of 5). Subtracting the original 1,000 dollars injected, the banks will have made new loans totaling 4,000 dollars.