In a Fractional Reserve Banking System, How Does an Increase

question 38

Multiple Choice

In a fractional reserve banking system, how does an increase in the reserve requirement change the money multiplier?

• A) The money multiplier increases by a higher percentage change than the increase in the reserve ratio.
• B) The money multiplier decreases by a higher percentage change than the increase in the reserve ratio.
• C) The money multiplier increases by a lower percentage change than the increase in the reserve ratio.
• D) The money multiplier decreases by a lower percentage change than the increase in the reserve ratio.

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Definitions:

Fixed Costs

Expenses that do not change with the level of output or sales in the short term.

Marginal Cost Curve

Graphical representation showing how the cost to produce one more unit changes as production increases, typically U-shaped due to economies and diseconomies of scale.

Average Total Cost Curve

A graphical representation showing the average cost per unit of output, calculated by dividing total costs (both fixed and variable) by the number of units produced.

Average Variable Cost Curve

A graphical representation that shows the relationship between a firm's total variable costs and output levels.