In the money creation process, the simple money multiplier assumes that banks hold no excess reserves. what is the consequence of a bank holding excess reserves? choose one:

a. the simple money multiplier becomes smaller as less money is loaned out.
b. the simple money multiplier becomes smaller as fewer deposits are made.
c. the simple money multiplier becomes larger as more deposits are made.
d. the simple money multiplier initially increases but then decreases as loans are paid off.
e. the simple money multiplier becomes larger as more money is loaned out.

A. The simple money multiplier becomes smaller as less money is loaned out.

Explanation:

The multiplier becomes smaller because less money is loaned out, not because fewer deposits are made.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

u = 30

continuing your method

= +

subtract from both sides

= - thus

= -

= ⇒ u = 30