. If the reserve requirement is 10%, then the potential money multiplier is ____
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. If the reserve requirement is 10%, then the potential money multiplier is ____ and the actual money multiplier is ____. 100; less than 100 10; less than 10 100; greater than 100 10; greater than 10 18. If there is a general rise in fear of the financial system: the potential multiplier will rise. the potential multiplier will fall. the actual multiplier will rise. the actual multiplier will fall. 19. Which of the following statements is CORRECT? The Fed's actions are subject to executive branch control. Politically controlled banks are better at fighting inflation than are independent central banks. The Federal Reserve is considered to be an independent central bank. The Federal Reserve System is not subject to Congressional oversight. 20. A lower reserve requirement: increases the ability of banks to make loans. further limits deposit creation. lowers the money multiplier. restricts the borrowing capability of borrowers. 21. Which of the following measures would increase the money supply? increasing the reserve requirement increasing the discount rate selling government bonds buying government bonds 22. A higher interest rate __________ consumption, investment, and _____________, which ___________ aggregate demand decreases; exports; decreases decreases; imports; decreases increases; exports; increases increases; imports; increases 23. In the long run, when the economy is at full employment, any change in money supply: leads to a change in velocity only. leads to a change in aggregate output only. leads to a change in prices. is brought about by a change in tax policy. 24. In the equation of exchange, if M = $2 trillion, P = 1.5, and Q = $8 trillion: the velocity of money (V) = 6. nominal GDP is $16 trillion. the velocity of money (V) = 4. real GDP is $12 trillion. . If the reserve requirement is 10%, then the potential money multiplier is ____ and the actual money multiplier is ____. 100; less than 100 10; less than 10 100; greater than 100 10; greater than 10Explanation / Answer
17.
If the reserve requirement is 10%, then the potential money multiplier is 10 and the actual money multiplier is less than 10.
The money multiplier = 1/RR = 1/.1 = 10 times
10 times is the maximum potential, but due to leakages and savings by not investing or depositing money into financial institutions the actual increase in money supply may not be 10 but always less than 10.
20. A lower reserve requirement will increase the ability of the financial institutiopns to lend. Lower the reserves higher will be the lending capacity.
21. Purchasing or buying of bonds from the open market will increase the money supply in the economy.
If the reserve requirement is 10%, then the potential money multiplier is 10 and the actual money multiplier is less than 10.
The money multiplier = 1/RR = 1/.1 = 10 times
10 times is the maximum potential, but due to leakages and savings by not investing or depositing money into financial institutions the actual increase in money supply may not be 10 but always less than 10.
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