Which of the following is true?

Question

Quizplus · Accepted Answer

The required reserve ratio determines the amount of reserves a bank must hold against its deposits. The larger the reserve ratio, the smaller the money multiplier, and vice versa. Therefore, a smaller required reserve ratio results in a larger money multiplier. This is because banks have more excess reserves to lend out, creating more money through the deposit multiplication process.

Option A is incorrect because actual reserves are equal to the sum of required reserves and excess reserves.

Option B is incorrect because the predominant liability of banks is deposits, not loans.

Option D is incorrect because if banks choose not to lend all of their excess reserves, the total amount of money created will be lower, not higher.

Option E is incorrect because required reserves are equal to deposits times the required reserve ratio, not the money multiplier.

Which of the Following Is True