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