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AP® Macroeconomics

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Moderate

Money Expansion Shortfalls

APMACR-PVFJUE

Suppose a bank received a demand deposit of \$1000 and the Required Reserve Ratio was 10%.

If, in the final analysis, the actual amount of money creation was only \$800, then which of the following is a likely explanation for the money creation shortfall?

I. Currency Drain

II. Excess Reserves

III. Liability trap

A

I only

B

II only

C

III only

D

I and II

E

I, II and III