The correct option that defines the banking regulations.
Answer to Problem 4MCQ
Option c is correct.
Explanation of Solution
Explanation for correct option:
c.
If people hold back the excessive cash then money supply expansion will be hindered. This is because bank won’t be able to lend out more deposits if cash is kept by the customers. This will reduce the size of money multiplier if checkable deposits are reduced. Therefore, option c is correct.
Explanation for incorrect option:
a.
If
b.
If
d.
Decrease in bank runs depicts the health banking sector which means money supply will keep on increasing as depositors are making additional deposits. Therefore, option d is incorrect.
e.
If deposit insurance increases then depositors faith with the banking deposits are increasing which means expansion in money supply. Therefore, option e is incorrect.
Money multiplier: Money multiplier can be referred as the ratio between money supply and the monetary base.
Chapter 25 Solutions
Krugman's Economics For The Ap® Course
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