CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

Assuming there are no leakages out of the banking system, a money multiplier equal to 10 means that ______
A. an additional $10 of reserves creates one dollar of deposits.
B. each additional dollar of deposits creates $10 of reserves.
C. each additional dollar of reserves creates $10 of additional deposits.
Explanation: Additional reserves create additional deposits, not the other way around.

User Contributed Comments 3

User Comment
Misah How reserve can create a deposit?
zeph because deposits are bank assets, which as they increase also allow liabilities (deposits) to increase. And in this case, need 1 dollar reserve for each 10 deposits
monteleone The amount of reserves will always be less than the amount of deposits.
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