Which of the following has proved to be spectacularly false, at least recently?
A)As an expansion proceeds, people will hold no more cash.
B)As an expansion proceeds, banks will hold no more excess reserves.
C)The oversimplified money multiplier formula is predicated on two critical assumptions.
D)All of the above are false.

Question

Quizplus · Accepted Answer

Recently, during the COVID-19 pandemic, the Federal Reserve has encouraged banks to hold excess reserves to ensure liquidity and stability in the financial system. This has proved the statement in option B to be false as banks are holding more excess reserves even during an expansion. Option A is partially true as people may hold less cash as they switch to digital alternatives, but it is not entirely false. Option C is true as the money multiplier formula is based on assumptions that do not always hold in the real world.

Which of the Following Has Proved to Be Spectacularly False