Disadvantages of Using Reserve Requirements to Control the Money Supply

question 33

Multiple Choice

Disadvantages of using reserve requirements to control the money supply include

• A) their overly-powerful impact on the money supply.
• B) creating potential liquidity problems for banks with high levels of excess reserves.
• C) their overly-powerful impact on the monetary base.
• D) all of the above.

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Definitions:

Ordinary Annuity

Homogeneous financial installments disbursed at the cessation of individual periods across a confirmed timeline.

Nominal Interest

The interest rate stated on a loan or investment agreement before any adjustments for compounding or inflation.

Effective Rate

Another term for the effective interest rate, emphasizing its real cost or yield accounting for compounding and other factors.

Compounding Interval

The frequency at which interest is added to the principal of a deposit or loan, affecting the total interest earned or paid.