Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic? Select one: A. Banks loan out all of their excess reserves. B. The Fed sets the required reserve ratio. C. The Fed is able to affect the level of reserves in the banking system. D. The simple deposit multiplier is equal to 1 divided by the required reserve ratio. Clear my choice
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In reality, banks do not always loan out all of their excess reserves as they also need to keep some reserves on hand for liquidity and regulatory requirements. Show more…
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Multiple Choice: Which of the following statements is correct? A) In the special case of 100-percent-reserve banking, the reserve ratio is 1, the money multiplier is 2, and banks create money. B) In the special case of 100-percent-reserve banking, the reserve ratio is 1, the money multiplier is 1, and banks do not create money. C) When the reserve ratio is 0.5, then the money multiplier is 1 and banks do not create money. D) When the reserve ratio is 0.125, then the money multiplier is 8, and each bank loans $8 for every $1 that it accepts in deposits.
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In the money creation process, the simple money multiplier assumes that banks hold no excess reserves. What is the consequence of a bank holding excess reserves? Choose one: A. The simple money multiplier becomes smaller as fewer deposits are made. B. The simple money multiplier becomes smaller as less money is loaned out. C. The simple money multiplier initially increases but then decreases as loans are paid off. D. The simple money multiplier becomes larger as more deposits are made. E. The simple money multiplier becomes larger as more money is loaned out.
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Assume that the required reserve ratio is set at 0.06250.0625 . What is the value of the money (deposit) multiplier? value of money multiplier: How much will the money supply increase if the Fed increases reserve requirements such that banks have to hold $350350 in additional reserves? Assume that banks only hold in reserves what is required. increase in money supply: $ Which statement is a consequence of fractional reserve banking? Fractional reserve banking ensures that private banks make a profit. Control of the required reserve ratio gives the Fed a tool that can be used to implement fiscal policy. Fractional reserve banking implies that private banks have a role in making changes to the money supply.
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