Which of the following would lead to a rapid growth of the money supply in the future?
A) The use of large excess reserves by banks to extend additional loans.
B) A reduction in government expenditures to reduce the size of the federal deficit.
C) An increase in government expenditures financed by taxes.
D) An increase in the interest rate the Fed pays banks holding excess reserves.

Question

Quizplus · Accepted Answer

If banks use their excess reserves to extend additional loans, this will increase the amount of money in circulation and lead to a rapid growth in the money supply. As loans are repaid, the money supply will continue to increase as long as banks continue to make additional loans.

Which of the Following Would Lead to a Rapid Growth