The money supply will grow faster through deposit creation when the required reserve ratio is:
A) high and banks hold excess reserves.
B) high and banks cannot find good customers to lend to.
C) low and banks are able to lend out all of their excess reserves.
D) low and banks are unable to loan out all of their excess reserves.
E) high and banks are not able to loan out all of their excess reserves.

Question

Quizplus · Accepted Answer

When the required reserve ratio is low, banks are able to lend out all of their excess reserves, which leads to more deposit creation and an increase in the money supply.

The Money Supply Will Grow Faster Through Deposit Creation When