The Size of the Effect of a Given Deposit of Cash

question 120

Multiple Choice

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

• A)​the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves.
• B)​the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves.
• C)​the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves.
• D)​the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves.

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Definitions:

Noncash Assets

Assets owned by a business or individual that are not in the form of cash but can be converted into cash within a year, such as inventory, bonds, or property.

Capital Account

An account showing the net worth of a business, influenced by owner's contributions, withdrawals, and the business's earnings or losses.

Partners' Equity

The interest or claim that partners have in the assets of a business, equal to the total assets minus liabilities and other equities.

Equity

The amount of money that would be returned to shareholders if all of the assets were liquidated and all of the company's debt was paid off.