A bank has excess reserves to lend but is unable to find anyone to borrow the money This will _________ the size of the money multiplier?
Correct answer: A. reduce
- A. reduce
- B. have no effect on
- C. increase
- D. double
Explanation
The money multiplier depends on banks converting excess reserves into loans and deposits. If a bank cannot lend those reserves, deposit creation is reduced, lowering the effective size of the multiplier.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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