Question

n the money creation process, the simple money multiplier assumes that banks hold no excess reserves. What is the consequence of a bank holding excess reserves

Answer 1

Answer: The simple money multiplier becomes smaller as less money is loaned out

Explanation:

In the money creation process, the simple money multiplier assumes that thee are no excess reserves that are held by the banks and that there are no currency being held by the public.

The consequence of a bank holding excess reserves will be that the simple money multiplier will become smaller when less money is being loaned out. There will be less money in circulation when excess reserves are held by the banks. This will result in the money multiplier to be smaller.