How is money created “out of thin air” by banks? Question 11 options: a) b) c) d

Question

How is money created “out of thin air” by banks?

Question 11 options:

a)

b)

c)

d)

Question 12 (1 point)

If the money multiplier is 4, what is the reserve requirement?

Question 12 options:

a)

b)

c)

d)

Question 13 (1 point)

The main feature of fractional reserve banking is that banks:

Question 13 options:

a)

b)

c)

d)

Question 14 (1 point)

Which of these is a liability for a bank?

Question 14 options:

a)

b)

c)

d)

Save

Question 15 (1 point)

What is the most important function of the Federal Reserve?

Question 15 options:

a)

b)

c)

d)

a)

Banks are able to print as much money as they need to run their daily operations.

b)

Banks can borrow large amounts of money from the government at virtually no interest.

c)

Banks can recall loans back from customers at any time, generating reserves quickly.

d)

Banks loan out money that is then redeposited into other banks, creating a cycle.

Explanation / Answer

11. Ans: Banks loan out money that is then redeposited into other banks, creating a cycle.

Explanation:

This is called the multiplier process of money creation

12. Ans: 25%

Explanation:

Multiplier = 1 / RR

     4 = 1 / RR

    RR = 1 / 4 = 0.25    or 25%

13. Ans: keep a portion of deposits in reserves but lend out the rest.

14. Ans: customers' checking account balances

15. Ans: open market operations

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