Mod 4.4: Banking and Money Creation

Currency in bank vaults and bank deposits held by the Federal Reserve are called:

• money supply

• assets

• liabilities

• bank reserves

• endowment

When a bank's depositors withdraw funds due to widespread fears of bank failure, there is a

• bank phobia

• bank run

• bull market

• bear market

• rabbit market

The smallest fraction of bank deposits a bank is required to hold

• reserve ratio

• capital requirement

• deposit insurance

• deposit assurance

• mortgage insurance

The money supply is equal to

• currency in circulation

• bank reserves + currency in circulation

• M1 + M2

• monetary base – currency in circulation

• currency in circulation + checkable bank deposits

The money multiplier =

• 1 + rr

• 1 – rr

• 1 (rr)

• 1 / rr

• 1^rr

If the reserve requirement is 20%, what is the money multiplier?

• 1/5

• 1/2

• 5

• 10

• 20

To calculate the total money expansion in an economy, you should:

• multiply the reserve requirement by the required reserves

• multiply the reserve requirement by the excess reserves

• multiply the inverse of the reserve requirement by the required reserves

• divide the excess reserves by the reserve requirement

• divide the reserve requirement by the excess reserves