If the Banking System Has $2,000 in Excess Reserves, Then

question 116

True/False

If the banking system has $2,000 in excess reserves, then it can expand deposits at most by $10,000 if the required reserve ratio is 10%.

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Definitions:

Spending Multiplier

The ratio of the change in total income to the initial change in spending that brought it about, illustrating how initial spending leads to further spending in the economy.

Expansionary Monetary Policy

A form of monetary policy where the central bank increases the money supply to stimulate economic activity, typically by lowering interest rates.

Aggregate Investment

The total amount of investment in goods and services within an economy over a specific period, including investments in business capital and residential construction.

Demand for Money

The desire to hold cash or easily liquidated financial instruments for transactions, precautionary, or speculative motives.