Question

Which of the following is incorrect?

The reserves held to meet the reserve requirement are required reserves.

The reserves held in excess of required reserves are excess reserves.

Banks decide how much excess reserves to hold, so excess reserves can be positive or negative.

Which of the following sets of variable(s) do you need to know in order to calculate the deposit multiplier, when banks are not necessarily loaned up?

		The required reserve ratio
		Maximum possible change in checkable deposits and change in reserves
		Maximum possible change in checkable deposits and the required reserve ratio

When would we move along a money demand curve (as opposed to shifting the curve)?

		When prices of goods and services change.
		This will never happen no matter what changes.
		When the interest rate changes.

Answer 1

Banks do not decide how much excess reserves they can hold. Reserve requirement is set by the central bank and therefore it is a Central Bank that determines the excess reserves of commercial banks. Third statement is incorrect

Third statement is correct. Deposit multiplier includes required reserve ratio, as well as excess reserve to deposit ratio. We need both of them when the bank is not necessarily loaned up

When the interest rate changes. this is because money demand is a inverse function of rate of interest and there is a movement when interest rate changes.