Statement I: Time deposits have different reserve requirements than demand deposits.
Statement II: The deposit expansion multiplier is,in reality,quite a bit lower than it would be if we based it solely on the reserve ratio.

Question

Quizplus · Accepted Answer

Statement I is true because time deposits are considered less liquid than demand deposits and therefore are subject to different reserve requirements under federal banking regulations.

Statement II is also true because the deposit expansion multiplier takes into consideration not just the reserve ratio, but also other factors such as the desire of individuals to hold cash outside of banks and the willingness of banks to lend out their excess reserves. Therefore, the multiplier is lower than it would be if based solely on the reserve ratio.

Statement I: Time Deposits Have Different Reserve Requirements Than Demand