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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Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
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