Which of these assumptions is made in the simple theory of deposit creation (multiplier = 1 ÷ r)?

Borrowers keep all their loans in cashCorrect answerYour answerBanks keep 100% reservesCorrect answerYour answerThere is no reserve requirement and no limitCorrect answerYour answerAll loans return as deposits; no excess reservesCorrect answerYour answer

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CorrectNot quiteAnswer D

Correct answer: D

If money leaked out as cash or banks held extra reserves, creation would be smaller than 1 ÷ r.

Concept: Assumptions of the simple multiplier
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsDeposit creation, round by round

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Which of these assumptions is made in the simple theory of deposit creation (multiplier = 1 ÷ r)?

Explanation