When the Required Reserve Ratio Is Lowered, the Money Multiplier

question 7

Multiple Choice

When the required reserve ratio is lowered, the money multiplier ,

• A) increases, and the amount of excess reserves increases in the banking system.
• B) decreases, and the amount of excess reserves increases in the banking system.
• C) decreases, and the amount of excess reserves decreases in the banking system.
• D) increases, and the amount of excess reserves decreases in the banking system.

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Definitions:

Tension

A psychological state or physical condition resulting from the conflict between internal needs and external forces, often leading to stress.

Drive Theory

A psychological concept suggesting that motivation arises from biological drives that propel an organism to satisfy its needs.

Physiological Equilibrium

The state of internal, physical, and chemical balance maintained by living systems.

Drive Reduction

A motivational theory that suggests behavior is motivated by the desire to reduce internal drives caused by unmet physiological needs, aiming to return to a state of homeostasis.