The Sharp Increase in the Excess Reserves Held by the Commercial

question 166

Multiple Choice

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for

• A) a sharp contraction in the money supply, which is likely to increase the length and severity of the recession.
• B) a rapid increase in the money supply, potentially leading to inflation.
• C) a gradual increase in the money supply, following the trend of the previous decade.
• D) a reduction in the ability of banks to extend additional loans.

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Definitions:

Bondholders

Individuals or entities who own debt securities issued by corporations or governments, effectively lending them money.

Interest

A fee charged for the opportunity to borrow money, commonly denoted as an annual percentage rate.

General Partner

An owner of a partnership who has unlimited liability and is typically involved in the daily operations of the business.