Asked by Ashram Maharaj on May 30, 2024
Verified
The extent of money expansion will be:
A) greater if banks hold on to excess reserves.
B) greater if private individuals hold on to cash.
C) greater if banks hold on to excess reserves but less if private individuals hold on to cash.
D) less if banks hold on to excess reserves but greater if private individuals hold on to cash.
E) less if banks hold on to excess reserves or private individuals hold on to cash.
Money Expansion
refers to an increase in the money supply, which can result from actions by the central bank or financial institutions that impact lending and liquidity.
Excess Reserves
The capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls.
Private Individuals
Persons or entities that are not part of the government or public sector, typically referring to ordinary citizens or privately owned entities.
- Outline the role of the money multiplier concept in estimating the repercussions on the money supply after central bank operations.
Verified Answer
OA
Ogundola AkintoyeJun 03, 2024
Final Answer :
E
Explanation :
The extent of money expansion is less if banks hold on to excess reserves because they are not using these reserves to extend more loans, which would increase the money supply through the money multiplier effect. Similarly, if private individuals hold on to cash instead of depositing it in banks, this cash is not available to banks to use as reserves for new loans, also reducing the potential for money expansion.
Learning Objectives
- Outline the role of the money multiplier concept in estimating the repercussions on the money supply after central bank operations.