In order for the money multiplier to reach its maximum level, two conditions wil
ID: 1210797 • Letter: I
Question
In order for the money multiplier to reach its maximum level, two conditions will need to be met: [choose two responses]
a. banks will need to lend out all of what their depositors deposit
b. banks will need to be "loaned up", with no excess reserves
c. the public will hold all of their M1 balances as cash
d. the public will hold all of their M1 balances as transactions deposits
The Federal Reserve system has imposed upon all member banks a minimum amount of reserves they must hold to meet the demands of their depositors for cash. That minimum amount is....
the required reserve ratio times the amount the bank has promised its depositors (transactions deposits).
excess reserves minus required reserves
the required reserve ratio divided by the amount the bank has promised its depositors (transactions deposits).
total reserves minus excess reserves
Not including travelers' checks (which account for less than 1% of the M1 money supply), what are the major components of the M1 money supply?
transaction deposits at a commercial bank held by the public
cash held in the vaults of commercial banks
cash held by the public
large interest-bearing time deposits
gold held in federal reserve vaults
the required reserve ratio times the amount the bank has promised its depositors (transactions deposits).
excess reserves minus required reserves
the required reserve ratio divided by the amount the bank has promised its depositors (transactions deposits).
total reserves minus excess reserves
Not including travelers' checks (which account for less than 1% of the M1 money supply), what are the major components of the M1 money supply?
transaction deposits at a commercial bank held by the public
cash held in the vaults of commercial banks
cash held by the public
large interest-bearing time deposits
gold held in federal reserve vaults
Explanation / Answer
1. In order for the money multiplier to reach its maximum level, two conditions will need that needs to be met are as follows:
c. the public will hold all of their M1 balances as cash
d. the public will hold all of their M1 balances as transactions deposits
2 The correct answer is option C: the required reserve ratio divided by the amount the bank has promised its depositors (transactions deposits)
3. The correct answer is option C: Cash held by the public
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