The money multiplier is the multiple by which an initial change in:
A) nonincome-determined spending can change the money supply.
B) excess reserves in the depository institutions system can change the money supply.
C) nonincome-determined spending can change total output and income in the economy.
D) excess reserves in the depository institutions system can change total output and income in the economy.

Question

Quizplus · Accepted Answer

The money multiplier refers to how an initial change in excess reserves in the banking system can be amplified into a larger change in the money supply. This is because banks can lend out a portion of their reserves, which then get deposited in other banks, allowing those banks to lend out a portion of those deposits, and so on, thus multiplying the initial increase in reserves throughout the economy.

The Money Multiplier Is the Multiple by Which an Initial