What is a "currency drain"? How and why does it affect the money multiplier?
What will be an ideal response?
An increase in currency held outside the banks is a currency drain. A currency drain decreases the size of the money multiplier. The money multiplier exists because when banks loan their excess reserves, the funds wind up in other banks as excess reserves, where they are loaned once again. As a result, an initial increase in reserves and the monetary base wind up increasing the quantity of money by a magnified amount. A currency drain means that when banks make loans, some of the funds are taken out as cash and not deposited back in another bank. Thus the other banks' excess reserves do not increase as much, so the amount that they can loan is decreased. The decrease in loans means that the ultimate increase in the quantity of money is less, so that the money multiplier is smaller.
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A) area D B) area E C) area C D) area F
An explanation for the productivity slowdown from 1974 through 1995 is
A) measurement problems. B) an increase in labor quality. C) creative destruction. D) a decline in oil prices.
In the short run, a firm will eventually experience rising per-unit costs because of:
a. economies of scale. b. diseconomies of scale. c. the law of supply. d. the law of diminishing returns.
Which of the following is a certificate of indebtedness?
a. stocks and bonds b. stocks but not bonds c. bonds but not stocks d. neither stocks nor bonds