If the Fed's credit policies induces banks to hold substantial excess reserves at the Fed, then

Question

Quizplus · Accepted Answer

When the Fed induces banks to hold excess reserves, it reduces the amount of money available for lending, lowering the money multiplier. This means that for every dollar held in excess reserves, that is one less dollar that can be used for future lending and money creation. Therefore, the monetary base expands, but the money supply does not expand at the same rate.

If the Fed's Credit Policies Induces Banks to Hold Substantial