If banks do not loan out all their excess reserves,then the real world multiplier is
A)smaller than 1/RR.
B)larger than 1/RR.
C)equal to 1/RR.
D)not related to 1/RR.

Question

Quizplus · Accepted Answer

The real world multiplier is smaller than 1/RR if banks do not loan out all their excess reserves. This is because the multiplier assumes that all excess reserves are loaned out, but in reality, banks may choose to hold onto some of their reserves instead of loaning them out. This reduces the effectiveness of the multiplier in increasing the money supply.

If Banks Do Not Loan Out All Their Excess Reserves,then