The reserve ratio in Cloud City is 25%. When Lando purchased a bond
from the bank in the amount of $100, the money supply increased by
$300.
Which of the following is the most likely reason the money supply
increased by $300 instead of $400?
Choose 1 answer:
The spending multiplier is larger than the tax multiplier.
Banks refuse to hold excess reserves.
People store their wealth in bonds instead of in cash.
Banks are fully loaned out.
The citizens of Cloud City keep their money under their mattresses
instead of in banks.