MACRO UNIT VI Q11

macro unit VI Q11

macro unit VI Q11

Part I:

Money multiplier is smaller. A bank lends out all of its excess reserves, and if no extra currency is held by the nonbank public, all of the loan proceeds will get deposited in other banks, which will gain deposits and reserves, and be able to lend out more, depending on the size of the required reserve ratio. But if some of the loan proceeds are held as currency and not redeposited, some of the new loans won't be made and the money multiplier will be smaller. Same is true if banks ...