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) generally has become more equal. B) generally has become less equal. C) has become more equal than the distribution of wealth. D) has shown no discernible trend.
An Added Perspective in the text shows that the average size of Japanese rice farms is growing and productivity is improving. This will likely cause __________ and generate requests for ____________
a. prices to increase; price ceilings b. prices to increase; price floors c. supplies to increase; price ceilings d. prices to decrease; price ceilings e. prices to decrease; price floors
The unemployment rate equals the
a. number of employed persons divided by the number of unemployed persons. b. number of unemployed persons divided by the civilian non-institutional population. c. number of unemployed persons divided by the civilian labor force. d. sum of unemployed persons and discouraged workers divided by the civilian labor force.
Suppose Bob withdraws money from his checking account and deposits it into his savings account. What happens to M1?
A. It decreases. B. It increases. C. It stays the same. D. The effect is unknown.