Which of the Following Will Make the Real-World Money Multiplier

question 36

Multiple Choice

Which of the following will make the real-world money multiplier smaller than the theoretical formula?

• A) Banks actually hold fewer reserves than technically required by the Fed.
• B) Banks actually make loans for more money than they have in excess reserves.
• C) Banks may keep some excess reserves rather than loan it all out.
• D) Consumers spend more than they have using credit cards.

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Definitions:

Average Collection Period

The expected time a business collects payments from its customers for goods or services it has sold on credit terms.

Average Investment

The mean amount invested in certain assets or projects over a specific time period, aiming to gauge investment activity.

Net Working Capital

The gap between what a business owns in short-term assets versus what it owes in short-term liabilities.

Net Fixed Assets

The value of a company’s property, plant, and equipment (PP&E) minus its accumulated depreciation, indicating the net book value of its fixed assets.