Why is the real-world deposit multiplier smaller than 1/RR, where RR is the required reserve ratio?
What will be an ideal response?
There are two reasons why the real world multiplier is smaller than the deposit multiplier, 1/RR. First, banks do not loan out all their excess reserves. Banks like to keep some excess reserves on hand in case withdrawals are higher than the bank might typically expect. If this is the case, then the amount of money that is available to loan out in the next round is a bit smaller. This will shrink the amount of money expansion. Second, not all money that is loaned out in the money expansion process is put back into the banking system. Some of it leaks out in the form of currency and does not get entirely redeposited. Both of these actions make the money expansion smaller.
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A statement that "a hair stylist should not have to obtain a cosmetology license" is an example of what kind of statement?
A. Uninformed B. Biased C. Positive D. Normative
If the cost of producing a good rises for sellers, then how will this affect the market equilibrium for that good?
a. Price will rise and quantity will fall. b. Price and quantity will both rise. c. Price and quantity will both fall. d. Price will fall and quantity will rise.
If your wages are indexed so that they automatically adjust for inflation, in a period of continued high inflation, the cost of the goods and services you buy ____ and your nominal income ____
a. decreases, decreases
b. increases, increases
c. decreases, remains the same
d. increases, remains the same
How is it possible for the economy to have an inflationary gap?
A. Equilibrium is at a GDP level below full employment. B. Equilibrium is at a GDP level equal to full employment. C. Equilibrium is at a GDP level above full employment. D. GDP is rising at full employment. E. GDP is falling at full employment.