The Sharp Increase in the Excess Reserves Held by the Commercial

question 166

Multiple Choice

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for

• A) a sharp contraction in the money supply, which is likely to increase the length and severity of the recession.
• B) a rapid increase in the money supply, potentially leading to inflation.
• C) a gradual increase in the money supply, following the trend of the previous decade.
• D) a reduction in the ability of banks to extend additional loans.

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Definitions:

Stimulus-Stimulus Learning

A type of learning where an association is formed between two stimuli, leading to a new learned response.

Two-Factor Theory

A psychological theory proposing that emotion is based on two factors: physiological arousal and cognitive label of the arousal, proposed by Stanley Schachter and Jerome E. Singer.

Negative Reinforcement

A behavioral principle where the removal of an unpleasant stimulus strengthens a behavior or increases its likelihood of being repeated.