Suppose That There Are No Excess Reserves in the Banking

question 40

Multiple Choice

Suppose that there are no excess reserves in the banking system and the current amount of demand deposits is $100,000. If the monetary authorities lower the required reserve ratio from 10% to 5%:

• A) the amount of excess reserves in the banking system will fall.
• B) the amount of excess reserves in the banking system will remain the same.
• C) the money-creating potential of the banking system will decline.
• D) the money-creating potential of the banking system will rise.

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Definitions:

Collective Efficacy

Collective efficacy refers to the shared belief in a group's abilities to organize and execute the courses of action required to achieve given objectives.

False Consensus

A cognitive bias where people overestimate how much others agree with their own beliefs, behaviors, and attitudes.

Brainstorming

A group creativity technique designed to generate a large number of ideas for the solution to a problem in an uninhibited, non-judgmental environment.

Idea Generation

The process of creating, developing, and communicating new concepts or solutions.