If Banks Hold Excess Reserves Whereas Before They Did Not

question 82

Multiple Choice

If banks hold excess reserves whereas before they did not, the money multiplier:

• A)will become larger.
• B)will become smaller.
• C)will be unaffected.
• D)might increase or might decrease.

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Definitions:

Long Run

The long run is a time period sufficiently long that all factors of production and costs can be fully adjusted, including plant sizes, machinery, and entry or exit from an industry.

Monopolistically Competitive

A market structure where many firms sell similar but not identical products, allowing them some power to influence prices.

Efficient Use of Resources

An economic condition where resources are allocated in the most effective manner possible to meet the needs and desires of consumers.

Long-Run Equilibrium

A state in which all firms in a market or industry are making normal profits and there is no incentive for firms to either enter or exit the market.