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TRUE/FALSE The fractional reserve system allows banks to create money by making

TRUE/FALSE

1.              The fractional reserve system allows banks to create money by making loans based on the
                            quantity of demand deposits they have.

2.              The presence of excess reserves does not change how much money the banking system
                            actually creates.

3.              Without someone actually coming into the bank to demand a loan, there is no process of
                            money creation.

4.              Cautious banks may choose to hold excess reserves instead of lending them.

 

5.              By lowering the legal reserve requirement, the Federal Reserve System forces banks to
                            hold repaid loans as required reserves instead of lending the funds again.

6.              Banks cannot fail, even when they make a large number of bad loans.

 

7.              If the Federal Reserve increases the legal reserve requirement, banks are not obliged to
                            comply.

8.              Each bank decides what its legal reserve requirement will be.

 

9.              A lowering of the legal reserve requirement makes it possible to expand the money
                            supply.

10.              If the potential money multiplier is 4, a $1 increase in demand deposits can potentially
                            support $4 of demand deposits.

Feb 11 2020 View more View Less

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