The problem of banks choosing to hold excess reserves does not affect __________ .Select the correct answer below:contractionary monetary policyexpansionary fiscal policycontractionary fiscal policyexpansionary monetary policy
Question
The problem of banks choosing to hold excess reserves does not affect __________ .Select the correct answer below:contractionary monetary policyexpansionary fiscal policycontractionary fiscal policyexpansionary monetary policy
Solution
The correct answer is: expansionary fiscal policy.
Here's why:
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Banks choosing to hold excess reserves primarily affects monetary policy, not fiscal policy. Monetary policy involves managing the money supply and interest rates to control inflation and stabilize the economy. When banks hold excess reserves, they lend less money, which can reduce the money supply and potentially impact monetary policy.
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Fiscal policy, on the other hand, involves government spending and taxation. It is largely independent of what banks choose to do with their reserves. Therefore, whether the fiscal policy is expansionary (increasing government spending or decreasing taxes to stimulate the economy) or contractionary (decreasing government spending or increasing taxes to slow down the economy), it is not directly affected by banks' decisions to hold excess reserves.
So, the problem of banks choosing to hold excess reserves does not affect expansionary fiscal policy.
Similar Questions
If banks are currently holding zero excess reserves and the Fed lowers the required reserves ratio, which of the following will happen?Group of answer choicesBanks will have a reserve deficiency.Banks will have positive excess reserves.Banks will extend fewer loans.Banks will call in some of their loans to meet the reserve deficiency.
The actual change in the money supply as a result of an increase in excess reserves will be less than the maximum change if banksGroup of answer choicesdo not lend out all of their excess reservesborrow from the Federal Reservesell some of their government securities to the Federal Reservelend only their excess reserves
5. When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet A) the assets at the bank increase by $800,000. B) the liabilities of the bank increase by $1,000,000. C) the liabilities of the bank increase by $800,000. D) reserves increase by $160,000. 6. Which of the following statements are TRUE? A) A bank's assets are its sources of funds. B) A bank's liabilities are its uses of funds. C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital. D) A bank's balance sheet indicates whether or not the bank is profitable. 7. Which of the following statements is FALSE? A) A bank's assets are its uses of funds. B) A bank issues liabilities to acquire funds. C) The bank's assets provide the bank with income. D) Bank capital is recorded as an asset on the bank balance sheet.
The Federal Reserve has determined excess reserves will need to decrease by $750 billion in order to return the economy to full employment. To achieve this goal, the Federal Reserve shouldMultiple choice question.reduce the marginal propensity to consume.increase the interest rate paid on reserves.increase the marginal propensity to consume.reduce the interest rate paid on reserves.
The ________ the amount of excess reserves a bank holds, the ________ the size of the deposit multiplier. smaller; smaller greater; larger Correct! greater; smaller smaller; greater likelihood there is no change in
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