4 As the reserve requirement decreases, the money multiplier: a) decreases, and

Question

4 As the reserve requirement decreases, the money multiplier: a) decreases, and more money will be created when loans are made. b) decreases, and less money will be created when loans are made. c) increases, and more money will be created when loans are made. d) increases, and less money will be created when loans are made. 5 Holding cash as an asset is risk-free because the opportunity cost of storing value in the form of cash is zero. a) True b) False Money needs to have intrinsic value (value apart from being money) to function as a medium of exchange a) True 6. b) False 7 A fractional reserve banking system increases the risk of bank runs and panics, ceteris paribus. a) True b) False

Explanation / Answer

Question 4

There is inverse relationship between reserve requirement and money multiplier.

So, as the reserve requirement decreases, the money multiplier increases. This will lead to creation of more money each time a loan is made.

Hence, the correct answer is the option (c).

Question 5

When cash is held then it is not invested which means interest that could have earned is foregone. This foregone interest acts as opportunity cost of holding cash.

So, holding cash as an asset is not risk-free because there is positive opportunity cost of holding cash.

Thus, the given statement is false.

Hence, the correct answer is the option (b).

Question 6

To function as medium of exchange, money has to be generally accepted as means of payment. It may or may not have any intrinsic value. Paper notes do not have any intrinsic value then also they acts as medium of exchange as they are generally accepted as means of payment.

Thus, the given statement is false.

Hence, the correct answer is the option (b).

Question 7

Other things being equal, a fractional reserve banking system decreases the risk of bank run and panics.

Thus, the given statement is False.

Hence, the correct answer is the option (b).

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.