Which of the following best describes the chain of events in the money creation process?
A) The monetary base increases. Banks acquire excess reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional excess reserves.
B) Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money.
C) Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases.
D) Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money.
Question 2
The marginal product of labor is the increase in total product from a
A) one unit increase in the quantity of labor, while holding the quantity of other inputs constant.
B) one unit increase in the quantity of labor, while also increasing the quantity of other inputs by one unit.
C) one dollar increase in the wage rate, while holding the price of other inputs constant.
D) one percent increase in the wage rate, while also increasing the price of other inputs by one percent.
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