Econ past paper II 2006 Q50

2007-04-19 9:58 pm

Thd centrl bank of country B increases the legal reserve ratio in order to discourge the overheating activities of lending and borrowing in the economy. Suppose the banking system has no excess reserve. The above measure adopted by the central bank would not reduce.

A. the ability of deposit creation of the banking system
B. the amount of reserves of the banking system
C. the banking multiplier
D. the money supply

Ans: B

回答 (1)

仲泉

2007-04-20 1:12 am

✔ 最佳答案

When increase the legal reserve ratio, for example, increase form 20% to 25%

(A) the deposit creation multiputor decrease from 5 to 4, so reduce the ability of deposit creation of the banking system.
(B) banks will keep more reverse in order to fullfill the law requitment, so the amount of reverses of banking system increase.
(C) as (A) said
(D) since the deposit creation ability decrease, the total deposit will also decrease, that means M2 decrease, so Money supply reduce.

Therefore, only (B) is the suitable answer.

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