485 $
© 2014 Pearson Canada Inc.$- Explain why the simple deposit multiplier overstates the true deposit multiplier.
Answer: The simple model ignores the role banks and their customers play in the creation
process. The bank's customers can decide to hold currency and the bank can decide to hold
excess reserves. Both of these will restrict the banking system's ability to create deposits. Thus,
the true multiplier is less than the prediction of the simple deposit multiplier.
Diff: 1 Type: SA Page Ref: 389
Skill: Recall
Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
central bank can control the level of deposits by setting the level of reserves
16.5 Factors That Determine the Money Supply
An increase in the nonborrowed monetary base, everything else held constant, will cause
____.
A) the money supply to fall
B) the money supply to rise
C) no change in the money supply
D) demand deposits to fall
Answer: B
Diff: 1 Type: MC Page Ref: 390
Skill: Recall
Objective List: 16.2 Discern who controls the monetary base and what causes it to change
The money supply is ____ related to the nonborrowed monetary base, and ____
related to the level of borrowed reserves.
A) positively; negatively
B) negatively; not
C) positively; positively
D) negatively; negatively
Answer: C
Diff: 1 Type: MC Page Ref: 390
Skill: Recall
Objective List: 16.2 Discern who controls the monetary base and what causes it to change
The money supply is ____ related to the level of borrowed reserves.
A) negatively
B) not
C) positively
D) sometimes
Answer: C
Diff: 1 Type: MC Page Ref: 390
Skill: Recall
Objective List: 16.2 Discern who controls the monetary base and what causes it to change