In February, 2010 the U

question 234

Multiple Choice

In February, 2010 the U.S. M1 money multiplier crashed to 0.786. Each $1 increase in the monetary base resulted in the quantity of money increasing by only $0.79. Where did the remaining $0.21 disappear?

• A) Banks held part of the $0.21 as unplanned reserves.
• B) Banks loaned out the $0.21.
• C) Consumers held part of the $0.21 as currency.
• D) Both A and C are correct.

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Definitions:

Consumer Surplus

The contrast between the overall amount consumers are prepared and financially capable to invest in a good or service and the actual amount paid.

Marginal Cost

The incremental expense associated with the production of an extra unit of a good or service.

Single Seller

A market structure where there is only one provider of a product or service.

Collusively Agreed

An arrangement or agreement among competing entities to limit competition, usually regarding pricing or market sharing.