a. In the special case of 100-percent-reserve banking, the reserve ratio is 1, t
ID: 1194841 • Letter: A
Question
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 accept in deposits.
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 accept in deposits.
Explanation / Answer
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. The higher the reserve ration the less of it banks loan out and smaller will be the multiplier.
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. The higher the reserve ration the less of it banks loan out and smaller will be the multiplier.
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