T or F why 1- Assume that when $80,000 cash enter the banking system, the money
ID: 2494641 • Letter: T
Question
T or F why
1- Assume that when $80,000 cash enter the banking system, the money supply ultimately increases by $320,000. Assume also that all banks do not hold excess reserves and that the entire money supply consists of demand deposits. Then the total legal reserves for all banks will amount to $40,000, and total loans and investments for all banks will be equal to $ 280,000.
2- Banks cannot affect or contribute to changes in the money supply if they were required to hold all deposits in reserve.
3-Nowadays, a credit card is similar to a check, in money definition, according to macroeconomics.
Explanation / Answer
(1) Cannot be answered.
Unless Required Reserve ratio (or Money Multiplier) data is provided, we cannot say by how much money supply ultimately increases when additional cash enters the system.
(2) True
If all deposits are held in reserve, there are no excess reserves out of which banks can extend credit. Unless credit is generated, money supply in the economy cannot multiply.
(3) False
Credit cards do not qualify as being similar to a check because it represents a present or future obligation and is therefore, a form of loan, while a check is an immediately available form of existing liquidity.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.