Asked by Yessie Musah on Jul 13, 2024
Verified
In the money and credit expansion process,the total change in checkable deposits is equal to the initial change in excess reserves _____.
A) multiplied by the required reserve ratio
B) plus the change in required reserves
C) divided by the reciprocal of the required reserve ratio
D) multiplied by the reciprocal of the required reserve ratio
E) divided by the change in required reserves
Required Reserve Ratio
The minimum percentage of deposits that a bank must hold in reserve and not lend out.
Excess Reserves
Funds that banks hold over and above the required reserve ratio set by the central bank, often earning interest.
Checkable Deposits
Bank accounts from which individuals can deposit and withdraw money using checks, ATM transactions, and electronic payments.
- Master the idea and the arithmetic of the money multiplier and its repercussions on the money supply.
- Detail the procedure through which commercial banks engage in money creation by issuing loans.
Verified Answer
GS
Gjulia ScadutoJul 19, 2024
Final Answer :
D
Explanation :
The total change in checkable deposits is determined by the multiplier effect, which is equal to the reciprocal of the required reserve ratio. Therefore, the initial change in excess reserves must be multiplied by the reciprocal of the required reserve ratio to determine the total change in checkable deposits.
Learning Objectives
- Master the idea and the arithmetic of the money multiplier and its repercussions on the money supply.
- Detail the procedure through which commercial banks engage in money creation by issuing loans.