A Potential Problem with Expansionary Monetary Policy Is That Banks

question 59

Multiple Choice

A potential problem with expansionary monetary policy is that banks can:

• A) be loaned up prior to open-market operations.
• B) be unwilling to lend.
• C) decide that a recession is best for the economy.
• D) choose not to hold any reserves.

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Definitions:

Government Securities

Financial instruments issued by the government to finance its expenditures, offering a return in the form of interest payments to investors.

Bank Reserves

Bank reserves are the amount of cash that banks must hold either in their vaults or on deposit with a central bank, used to back deposits and ensure liquidity.

Money Supply

The sum of all financial assets that are readily available in an economy at a given moment, including cash on hand, deposits in banks, and other easily convertible assets.

Recession 1981-1982

The recession of 1981-1982 was a severe global economic downturn characterized by high inflation, interest rates, and unemployment, particularly impacting the United States.