
Money Multiplier Practice
Flashcard
•
Social Studies
•
11th Grade
•
Practice Problem
•
Hard
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18 questions
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1.
FLASHCARD QUESTION
Front
How does the FED get reserves?
Back
They make it up out of thin air.
Answer explanation
The FED gets theses reserves by making them up literally out of thin air.
2.
FLASHCARD QUESTION
Front
What is a bank’s asset?
Back
Cash, loans, investments, and physical property
Answer explanation
An asset is any physical property or financial claim that is owned.
3.
FLASHCARD QUESTION
Front
What is the required reserve ratio?
Back
The required reserve ratio is the portion of depositors' balances that banks must have on hand as cash.
Answer explanation
Because the required reserve ratio is 0.1, Fidelity Bank sets side $1,000 of the new deposit as reserves and lends the remaining $9,000 for a computer purchase by increasing the borrower’s checking account.
4.
FLASHCARD QUESTION
Front
What does the potential expansion of checkable deposits in the banking system equal?
Back
Money multiplier multiplied by the initial excess reserves
Answer explanation
The potential expansion of checkable deposits in the banking system equals some multiple of the initial increase in excess reserves.
5.
FLASHCARD QUESTION
Front
What cycle repeats after round one?
Back
Borrowing, spending, and depositing.
6.
FLASHCARD QUESTION
Front
What is the money multiplier?
Back
The maximum multiple by which the money supply increases as a results of an increase in the banking system’s excess reserves.
Answer explanation
The money multiplier is the maximum multiple by which the money supply increases as a results of an increase in the banking system’s excess reserves.
7.
FLASHCARD QUESTION
Front
We can hold money as a form of wealth until we find something we want to buy with it.
Back
Store of Value
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