A potential money multiplier of 10 means that a. there can be no more lending av
ID: 1197268 • Letter: A
Question
A potential money multiplier of 10 means that
a. there can be no more lending available
b. a new deposit of $1,000 can result in new demand deposits equal to $11,000
c. the initial deposit must necessarily be $1,000
d. excess reserve requirements are 30 percent
e. the legal reserve requirement is 10 percent
An asset such as a house is
a. M1 money
b. not money
c. M3 money
d. near money
e. M2 and M3 money
Suppose Brian Moseley, watching David Letterman on TV one night, sees a Rock Classics commercial for five Billy Bragg CDs and decides to get them. He writes a check for $49.95 on his bank, the First National Bank of Cincinnati, and mails the check to Rock Classics in Athens, Georgia. Brian Moseley
a. will have to wait several months for the Atlanta Fed to consult with the Cleveland Fed to see if he is creditworthy
b. will likely receive his CDs in a timely fashion after his check goes through Rock Classics, the First National Bank of Cincinnati, the First National Bank of Athens, the Atlanta Fed, and the Cleveland Fed
c. will never receive his CDs because checks are not allowed to cross Fed districts
d. must cancel his check and try a credit card order because of the lack of security between Federal Reserve Banks.
e. must personally contact the Atlanta Fed to make them aware that they will have an upcoming transaction of less than $100 with the Cleveland Fed
Explanation / Answer
Soln :
1) The correct option is b
Explanation : The money multiplier measures the potential amount of money that the banking system generates with each dollar of reserves . Potential money creation = Initial deposit X money multiplier .
2) b
House is not money because house can be traded for money , but it is time consuming and expensive.
3) b
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