If the Reserve Requirement Were So Low That No Bank

question 15

Multiple Choice

If the reserve requirement were so low that no bank felt it was a constraint, then

• A) the relationship between currency and demand deposits would be too uncertain to allow an accurate calculation of the monetary base multiplier.
• B) the arithmetic that produced the monetary base multiplier would be invalidated by the uncertainty surrounding the Fed's balance sheet.
• C) the relationship between reserves and deposits would be so uncertain that the ability of the Fed to control the money supply through the monetary base would be severely hampered.
• D) the monetary base multiplier would have to be infinity and all monetary control would be destroyed.
• E) none of the above.

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Definitions:

Frontal Lobe

The part of the brain located at the front of each cerebral hemisphere, responsible for decision making, problem solving, and controlling behavior.

Neurogenesis

The process of generating new neurons in the brain, which occurs throughout life and plays a role in learning and memory.

Prefrontal Cortex

The part of the brain located at the front of the frontal lobes, involved in complex behaviors such as planning, decision making, moderating social behavior, and expressing personality.

Social Interactions

The process by which individuals act and react to those around them through verbal and non-verbal exchange.