Use the Simple Deposit Multiplier to Help Show Why the Money

question 12

Essay

Use the simple deposit multiplier to help show why the money supply increases when the Fed lowers the required reserve ratio (r).

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Definitions:

Internalizing

The process of absorbing or taking in information, values, or costs, often used when discussing the incorporation of external costs into market prices.

Externality

An economic effect of a transaction that affects third parties who did not choose to be involved in the transaction.

Externality

An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer.

Market Exchange

The process through which goods, services, or assets are traded between buyers and sellers at a determined price.