As a Result of an Increase in the Money Supply

question 102

Multiple Choice

As a result of an increase in the money supply, some banks may end up with excess reserves. What is the likely result?

• A) Banks will make more loans, thereby contributing to an increase in aggregate demand.
• B) Banks will make more loans, thereby contributing to a decrease in aggregate demand.
• C) Banks will raise interest rates.
• D) Banks will spend the excess reserves by paying their employees more.

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Definitions:

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Variable Costs

Costs that vary directly with the level of production or the volume of services provided.

Gross Domestic Product

The total market value of all goods and services produced within a country in a specific time period, serving as a broad indicator of its economic health.

Unemployment Rate

The ratio of the number of people classified as unemployed to the total labor force.