Assertion (A): The money multiplier is greater than 1.
Reason (R): Banks keep only a fraction of deposits as reserves and lend the rest, which returns as new deposits.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Since r is less than 1, 1 ÷ r is more than 1.
R is the banking process behind it.

Concept: Why the multiplier exceeds 1
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsThe money multiplier

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Ten questions from Money Creation by Banks, at your own pace.

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Assertion (A): The money multiplier is greater than 1.Reason (R): Banks keep only a fraction of deposits as reserves and lend the rest, which returns as new deposits.

Explanation

Assertion (A): The money multiplier is greater than 1.
Reason (R): Banks keep only a fraction of deposits as reserves and lend the rest, which returns as new deposits.