Suppose banks hold no customary reserves and every time a loan is made, it is taken in cash and not re-deposited in the banking system. Under these circumstances, the:
a. M2 money multiplier equals 0.
b. M2 money multiplier equals 1.
c. M2 money multiplier is greater than one.
d. M2 money multiplier is less than one.
Question 2
Assume that the central bank increases the reserve requirement. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
b. The quantity of real loanable funds per time period falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
c. There is not enough information to determine what happens to these two macroeconomic variables.
d. The quantity of real loanable funds per time period and net nonreserve-related international borrowing/lending remain the same.
e. The quantity of real loanable funds per time period falls, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
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