APFIVE Fractional Reserve Banking And The Money Multiplier
All of the following statements regarding fractional reserve banking and the money multiplier are true except:
A
If banks hold excess reserves above the required reserve ratio, the money multiplier increases.
B
Holding reserves above the required minimum reduces the potential for money creation and thus decreases the money multiplier.
C
Fractional reserve banking requires banks to hold only a fraction of deposits as reserves.
D
The money multiplier is calculated using the formula M = 1/(reserve ratio).
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