The money-creation formula is oversimplified because it assumes that
A)every recipient of a bank loan will redeposit the proceeds in another bank.
B)loan recipients will not take any of the proceeds in cash.
C)every bank lends out all excess reserves.
D)All of these responses are correct.

Question

Quizplus · Accepted Answer

The money-creation formula assumes that every recipient of a bank loan will redeposit the proceeds in another bank, loan recipients will not take any of the proceeds in cash, and every bank lends out all excess reserves. All of these assumptions need to hold true for the formula to accurately predict the amount of money that can be created through the banking system. However, in reality, these assumptions are often not fully met, making the formula oversimplified.

The Money-Creation Formula Is Oversimplified Because It Assumes That