If People Choose to Hold Some of a Newly Received

question 126

Multiple Choice

If people choose to hold some of a newly received loan as cash instead of keeping it in a checking account,the money supply

• A)will not increase as a result of that loan
• B)decreases as a result of that loan
• C)will not increase as much from that point on as it would if borrowers redeposited all of the money because the cash withdrawal increases excess reserves
• D)will not increase as much from that point on as it would if borrowers redeposited all of the money because cash is not included in the money supply
• E)will not increase as much from that point on as it would if borrowers redeposited all of the money because the cash withdrawal decreases excess reserves

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Definitions:

Nominal GDP

The market value of all final goods and services produced within a country in a given period, measured in current prices.

Quantity Equation

An equation that relates the quantity of money in an economy to the nominal value of economic output.

Price Level

A measure of the average prices of goods and services in an economy at a specific time, indicating the cost of living or inflation.

Classical Dichotomy

The theoretical separation of nominal and real variables in classical economics, implying that monetary changes do not affect real economic variables.