Ques Which of the following assumptions is necessary for the money multiplier (mm) to be used in the equation D=E×mD=E×m (where D stands for the maximum checkable-deposit creation and E is the initial change in excess reserves)? 1. Banks hold no excess reserves. 2. Banks have perfect information about the creditworthiness of all borrowers. 3.The Federal Reserve has set the required reserve ratio between 5% and 10%.
Ques Which of the following assumptions is necessary for the money multiplier (mm) to be used in the equation D=E×mD=E×m (where D stands for the maximum checkable-deposit creation and E is the initial change in excess reserves)? 1. Banks hold no excess reserves. 2. Banks have perfect information about the creditworthiness of all borrowers. 3.The Federal Reserve has set the required reserve ratio between 5% and 10%.
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter11: The Monetary System
Section: Chapter Questions
Problem 2PA
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Ques Which of the following assumptions is necessary for the money multiplier (mm) to be used in the equation D=E×mD=E×m (where D stands for the maximum checkable-deposit creation and E is the initial change in excess reserves )?
1. Banks hold no excess reserves.
2. Banks have perfect information about the creditworthiness of all borrowers.
3.The Federal Reserve has set the required reserve ratio between 5% and 10%.
If the above assumption did not hold, the change in the money supply would be _________ (less/greater) than you found because:
1. If banks held excess reserves, they would make fewer loans than they otherwise would.
2. The multiplier holds only as long as the required reserve ratio is between 5% and 10%.
3. Banks would make fewer loans than they would if they could perfectly observe borrowers' true creditworthiness.
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