Asked by Jocelyn Cooperwood on Apr 30, 2024
Verified
Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.
Required Reserve Ratio
The percentage of deposits that banks are mandated to keep on hand and not lend out, as regulated by central banking authorities.
Money Supply
The total amount of monetary assets available in an economy at any given time, including cash, coins, and balances held in checking and savings accounts.
- Evaluate the interrelation between reserve ratios, the production of money, and the conceivable limitations associated with the money multiplier effect.
Verified Answer
KO
Kylie OlsonMay 02, 2024
Final Answer :
When the reserve requirement is less than 100 percent, banks can lend out deposits. The money they lend out is redeposited. In this way, deposits can be greater than reserves. Since deposits are greater under fractional-reserve banking and since deposits are part of the money supply, the money supply will be greater under fractional-reserve banking.
Learning Objectives
- Evaluate the interrelation between reserve ratios, the production of money, and the conceivable limitations associated with the money multiplier effect.
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