Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

Which of the following represents the formula for the simple deposit multiplier?

$1 + \text{interest rate}$

$\text{required reserve ratio} \times 100$

$\frac{1}{\text{required reserve ratio}}$

$\frac{\text{total deposits}}{\text{total reserves}}$

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Verified step by step guidance

Understand the concept of the simple deposit multiplier: It is a formula used in banking to determine the maximum amount of money that can be created in the banking system through the process of deposit creation, given a required reserve ratio.

Recall the formula for the simple deposit multiplier: The formula is expressed as $ \frac{1}{\text{required reserve ratio}} $. This represents the inverse of the required reserve ratio, which is the fraction of deposits that banks are required to hold as reserves.

Analyze why $ \frac{1}{\text{required reserve ratio}} $ is correct: The required reserve ratio determines how much of a deposit must be kept in reserve and not loaned out. The multiplier shows how many times the initial deposit can be expanded in the banking system.

Compare the other options: $ 1 + \text{interest rate} $ is unrelated to the deposit multiplier, $ \text{required reserve ratio} \times 100 $ is simply a percentage representation of the reserve ratio, and $ \frac{\text{total deposits}}{\text{total reserves}} $ is a different ratio used for other analyses.

Conclude that $ \frac{1}{\text{required reserve ratio}} $ is the correct formula for the simple deposit multiplier, as it directly relates to the reserve requirement and the potential expansion of deposits in the banking system.