Because of widespread risk aversion in the financial sector in recent years, commercial banks in the United States have tended to hold __________ excess reserves than would otherwise have been the case. A result of this bank behavior is that the "money multiplier" in the U.S. economy is __________ than would otherwise have been the case.
A) a larger amount of; smaller
B) a larger amount of; larger
C) a smaller amount of; smaller
D) a smaller amount of; larger

Question

Quizplus · Accepted Answer

Holding larger amounts of excess reserves leads to less lending, which in turn results in a smaller money multiplier, as the money multiplier effect is driven by the lending and re-lending of funds.

Because of Widespread Risk Aversion in the Financial Sector in Recent