The Self-Correcting Mechanism Would Be Expected to Be Very Rapid

question 111

Multiple Choice

The self-correcting mechanism would be expected to be very rapid in an economy with

• A)a large multiplier.
• B)flexible prices.
• C)rigid wages.
• D)high labor productivity.

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Definitions:

Excess Reserves

The funds that commercial banks hold in their reserves over and above the regulatory requirement set by the central bank.

Reserve Ratio

The fraction of deposits that a bank is required to hold in reserve and not loan out, as mandated by central banking authorities.

Percent

A term used to describe one hundredth of a whole; a way to express fractions, amounts, or changes in quantities in terms of hundredths.

Reserve Requirement

A regulation that sets the minimum amount of reserves a bank must hold against deposits, used as a tool to control banking stability and money supply.