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

question 169

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) Both a. and b. above are correct.

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Definitions:

Consumption

Refers to the total amount of goods and services that households and individuals buy and use within an economy.

Complements

Products or services that are used together, enhancing the value or demand of each other when consumed in combination.

Mortgages

Loans specifically designed for purchasing real estate, where the property itself serves as collateral until the loan is paid off.

Interest Rates

Interest rates represent the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan amount.