If Banks Increase Excess Reserves to Increase Their Ability to Absorb

question 149

Multiple Choice

If banks increase excess reserves to increase their ability to absorb a higher rate of defaults, the _____ multiplier will _____.

• A) potential; rise
• B) potential; fall
• C) actual; rise
• D) actual; fall

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Definitions:

Net Capital Outflow

The difference between the domestic country's total purchase of foreign assets and foreign purchases of the domestic country's assets over a specific period of time.

Currency Depreciate

A decline in the value of one currency relative to another currency, which can affect international trade and economic balance.

Purchasing-Power Parity

A theory in economics that suggests that in the absence of transportation and other transaction costs, identical goods will have the same price in different markets when prices are expressed in a common currency.

Appreciate

In economic terms, it refers to the increase in value of an asset over time.