If Banks Decide to Hold Some of Their Excess Reserves

question 126

Multiple Choice

If banks decide to hold some of their excess reserves instead of lending them all out:

• A)the money multiplier will be less than 1 divided by the required reserve ratio.
• B)a loan of $1 will lead to a change in the money supply by a multiple amount equal to 1 divided by the required reserve ratio.
• C)the money multiplier becomes 1 divided by the excess reserves.
• D)depositors will have to borrow more to increase the money supply.