Suppose That the Interest Rate Is So Low That Banks

question 41

Multiple Choice

Suppose that the interest rate is so low that banks currently refuse to make loans. An increase in the supply of high-powered money will

• A) have no effect on the money supply if all the new high-powered money ends up as bank reserves.
• B) have no effect on the money supply if all the new high-powered money ends up as cash in the hands of the nonbank public.
• C) raise the money supply depending on banks reserve-holding ratio.
• D) all of the above are correct.