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) Both a. and b. above are correct.

Question

Quizplus · Accepted Answer

Banks keeping excess reserves reduces the amount of money they can loan out, thus decreasing the real-world money multiplier compared to the theoretical maximum.

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