6. When currency is deposited in a bank, it starts a multiplier process in which banks lend...
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6. When currency is deposited in a bank, it starts a multiplier process in which banks lend out excess reserves, leading to an increase in the money supply—so banks create money. If the entire money supply consisted of checkable bank deposits, the money supply would be equal to the value of reserves divided by the reserve ratio. In reality, much of the monetary base consists of currency in circulation, and the money multiplier is the ratio of the money supply to the monetary base.
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Essentials Of Economics
ISBN: 9781429218290
2nd Edition
Authors: Paul Krugman, Robin Wells, Kathryn Graddy
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