Which of the following will make the real-world money multiplier smaller than the theoretical formula?
A) Banks actually hold fewer reserves than technically required by the Fed.
B) Banks actually make loans for more money than they have in excess reserves.
C) Banks may keep some excess reserves rather than loan it all out.
D) Consumers spend more than they have using credit cards.

Question

Quizplus · Accepted Answer

The real-world money multiplier can be smaller than the theoretical formula if banks choose to keep some excess reserves rather than loaning them all out. This reduces the amount of money created through the lending process and ultimately decreases the money multiplier. Option A and B may actually increase the money multiplier, and option D is unrelated to the concept of the money multiplier.

Which of the Following Will Make the Real-World Money Multiplier