Asked by
Jackisha Perez
on Nov 11, 2024
Verified
The actual money multiplier is smaller than the simple money multiplier because:
A) the actual multiplier affects M2 rather than M1.
B) cash withdrawals reduce the amount banks can lend out.
C) the actual multiplier affects the amount of excess reserves each bank holds.
D) the size of the simple multiplier depends on the volume of deposits unlike the actual multiplier.
E) the actual multiplier uses a different measure of reserve requirements.
Actual Money Multiplier
The real-world effect of a change in the base money supply on the money supply, taking into account changes in reserves and currency holdings.
Simple Money Multiplier
Refers to the ratio indicating the maximum amount of money that banks can theoretically generate with each dollar of reserves.
Cash Withdrawals
The process of taking money out of a bank account using a debit card or bank slip.
- Comprehend the theory and computation of the money multiplier and its effect on the money supply.
- Examine the impact of retaining cash as compared to banking deposits on the circulation of money.
Verified Answer
CG
Learning Objectives
- Comprehend the theory and computation of the money multiplier and its effect on the money supply.
- Examine the impact of retaining cash as compared to banking deposits on the circulation of money.