passwella.
Menu

JAMB Economics 1988 Question 32

Question 32

Financial Institutions

Which of the following factors enhances the ability of commercial banks to create money?

  1. A.Reduction in the reserve ratio
  2. B.Leakage of cash out of the banking system
  3. C.Excess of reserves
  4. D.Insistence on collateral security.
Show the answer and explanation

Answer: A (Reduction in the reserve ratio)

Explanation

A lower reserve ratio means banks keep less of each deposit and lend more, so the credit multiplier is larger.