The Money Multiplier

question 43

Multiple Choice

The money multiplier

• A) is equal to the reserve requirement.
• B) measures the maximum amount the money supply can increase when new deposits enter the banking system.
• C) works only for increases in the money supply and never for decreases.
• D) demonstrates that small changes in reserves have a negligible impact on the total money supply.

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Definitions:

MRP

Stands for Marginal Revenue Product, which is the additional revenue produced by hiring or utilizing an additional unit of a resource.

Output Increases

A situation where the production capacity of an economy grows, leading to more goods and services being available.

Productivity Rises

An increase in the efficiency of production, often leading to more output with the same or fewer inputs.

Relative Prices

The price of a commodity or service in comparison to another, indicating its opportunity cost and economic choice.