Which of the following best describes the chain of events in the money creation process?
A) The monetary base increases. Banks acquire excess reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional excess reserves.
B) Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money.
C) Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases.
D) Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money.
A
You might also like to view...
The two most important categories of assets on the Fed's balance sheet are ________ and ________ because they earn interest
A) discount loans; coins B) securities; discount loans C) gold; coins D) cash items in the process of collection; SDR certificate accounts
The opportunity cost of an action: a. can be determined by considering the benefits that flow from the action as well as the monetary costs incurred as a result of the action. b. can be determined by adding up the bills incurred as a result of the action
c. can be objectively determined only by economists. d. is a subjective valuation that can be determined only by the individual who chooses the action.