Because of the money multiplier, an initial change in excess reserves in the depository institutions system can lead to a multiple change in the:
A) number of institutions in the system.
B) amount of money required to secure a loan.
C) amount of required reserves needed to back a single deposit.
D) amount that can be loaned by all institutions, taken together, in the system.

Question

Quizplus · Accepted Answer

The money multiplier effect describes how an initial change in excess reserves can lead to a much larger change in the total amount of loans that banks can make. This is because each time a bank loans out money, those funds can be deposited in another bank, which can then loan out a portion of those deposits, and so on, increasing the total amount of money in the system.

Because of the Money Multiplier, an Initial Change in Excess