To the extent that banks hold excess reserves, the actual expansion of the money supply will be greater than that predicted by the size of the money multiplier.

Name: To the extent that banks hold excess reserves, the actual expansion of the money supply will be greater than that predicted by the size of the money multiplier.
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Question

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Excess reserves reduce the amount of money banks can lend out, leading to a smaller expansion of the money supply than predicted by the money multiplier.

To the Extent That Banks Hold Excess Reserves, the Actual