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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