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In a multi-bank system, the amount of money the system can create is determined using the:
AConsumer price index
BThe unemployment rate
CThe exchange rate
DThe money multiplier
Answer & Solution
Correct answer: D. The money multiplier
1. Banks together create more money than any one bank alone.
2. Banks hold reserves and lend the rest out.
3. In a multi-bank system, institutions determine the amount of money the system can create.
4. They do so by using the money multiplier.
5. That multiplier links reserves to the total money supply.
_Source: OpenStax Principles of Macroeconomics for AP Courses 2e (CC BY 4.0), Ch 13 'Money and Banking'_
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