Asked by Yesenia Gomez on Apr 24, 2024
Verified
Which of the following are factors that will modify the size of the deposit expansion multiplier?
A) A foreign trade imbalance
B) Cash
C) Excess reserves
D) Change in reserve requirements of all these factors
Deposit Expansion Multiplier
The ratio that measures the potential increase in total deposits in the banking system generated from an increase in primary deposits.
Excess Reserves
Funds that banks hold over and above the required reserve ratio set by a central banking authority, often for safety or emergency purposes.
Reserve Requirements
The minimum amount of reserves that a bank must hold as mandated by a central bank, affecting the bank's ability to lend.
- Understand the connection between open market operations, reserve requirements, and money supply dynamics.
Verified Answer
NP
NAKYRA PROPHET SMITHMay 02, 2024
Final Answer :
D
Explanation :
The size of the deposit expansion multiplier is influenced by various factors including the amount of cash held by the public, excess reserves held by banks, and changes in reserve requirements. A foreign trade imbalance, however, does not have a direct impact on the multiplier. Therefore, the best choice is D, which includes all the factors that can modify the size of the deposit expansion multiplier.
Learning Objectives
- Understand the connection between open market operations, reserve requirements, and money supply dynamics.