Consider the money and credit expansion process.When r = the desired reserve ratio, what is the total change in chequable deposits equal to?

Question

Quizplus · Accepted Answer

The money and credit expansion process involves the creation of new money through the expansion of credit. When r= the desired reserve ratio, the total change in chequable deposits is equal to the initial change in excess reserves multiplied by 1/r. This is because banks can create new money by multiplying the excess reserves by the inverse of the reserve requirement (1/r). Therefore, the total change in chequable deposits is directly proportional to the initial change in excess reserves and inversely proportional to the reserve requirement or desired reserve ratio. Choice D correctly represents this relationship.

Consider the Money and Credit Expansion Process