The Quantity of Money That the Banking System Can Create

question 126

Multiple Choice

The quantity of money that the banking system can create is limited by

• A)bank managers' decisions.
• B)the monetary base, desired reserves, and desired currency holdings.
• C)the number of consumers who apply for loans.
• D)the credit ratings of the consumers who are applying for loans.
• E)the quantity of bank notes released by the Bank of Canada.

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Definitions:

Principal-Agent Relationship

A situation in which one party (the principal) grants another party (the agent) the authority to act on their behalf, often subject to a contract.

Shareholders

Individuals or institutions that own shares in a corporation, giving them a stake in the company's ownership and profits.

Adverse Selection Problem

A situation where asymmetric information leads to the selection of poor-quality goods or candidates, as the chooser lacks information to make an optimal decision.

Incompetent

Lacking the necessary skills, qualities, or ability to effectively perform a specific job or task.