Question

Which of the following factors pose a limit on the ability of commercial banks to increase the quantity of money in circulation by extending new loans?

Select one or more:

a. the quantity of Central Bank reserves that they own

b. the quantity of money that savers lent to them by opening deposits

c. the behavior of households and firms, which reduce the quantity of money in circulation by repaying previous loans.

d. the availability of profitable lending opportunities in the economy

e. the willingness of household and firms to take up new debts at the given interest rate

Answer 1

"A" "D" "E".

The quantity of central bank loans after the Fed has set up reserve requirement in the market. The availability of profitable lending opportunity in the economy and the willingness of household and firms to take up new debts at the given interest rate.

these are the three factors that affect the ability of the banks in the market to lend.