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If the Reserve Requirement Were So Low That No Bank

Question 24

Multiple Choice

If the reserve requirement were so low that no bank felt it was a constraint, then


A) the relationship between currency and demand deposits would be too uncertain to allow an accurate calculation of the monetary base multiplier.
B) the arithmetic that produced the monetary base multiplier would be invalidated by the uncertainty surrounding the Fed's balance sheet.
C) the relationship between reserves and deposits would be so uncertain that the ability of the Fed to control the money supply through the monetary base would be severely hampered.
D) the monetary base multiplier would have to be infinity and all monetary control would be destroyed.
E) none of the above.

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