Money Multiplier

How does the FED get reserves?

• By borrowing from foreign central banks
• They make it up out of thin air.

• By printing more money
• By selling government bonds to the public

Answer explanation

The FED gets theses reserves by making them up literally out of thin air.

If shares are called the owner's equity. what do they represent?

• Debt owed by the company
• The net worth of the bank

• Amount of revenue generated by the company
• Number of employees in the company

What is an bank’s asset

• Credit card debt
• Cash, loans, investments, and physical property
• Employee salaries
• Customer deposits

Answer explanation

An asset is any physical property or financial claim that is owned.

What is the first step to operate a bank?

• Obtain a charter, or the right to operate.

• Open a savings account
• Apply for a credit card
• Invest in stocks

What happens once the charter is granted?

• The charter becomes null and void
• The individual or organization is fined heavily
• The charter is revoked immediately
• They incorporate, issuing themselves shares of stock, or certificates of ownership.

Answer explanation

Once a charter is granted, they incorporate, issuing themselves shares of stock, or certificates of ownership.

What is the required reserve ratio?

• The required reserve ratio is the interest rate at which banks lend to each other
• The required reserve ratio is the portion of depositors' balances that banks must have on hand as cash.

  (0.1)

• The required reserve ratio is the maximum amount of money a bank can lend out
• The required reserve ratio is the percentage of profits that banks must keep as reserves

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.

What does the potential expansion of checkable deposits in the banking system equals

• Money multiplier multiplied by the initial excess reserves
• The number of bank branches in the country
• The Federal Reserve's discount rate
• Total amount of currency in circulation

Answer explanation

The potential expansion of checkable deposits in the banking system equals some multiple of the initial increase in excess reserves.

What cycle repeats after round one?

• life cycle
• water cycle
• cycle of the moon
• Borrowing, spending, and depositing.

What is the money multiplier?

• The maximum multiple by which the money supply increases as a results of an increase in the banking system’s excess reserves.

• The money multiplier is the percentage of income that is saved rather than spent
• The money multiplier is the total amount of money in circulation
• The money multiplier is the interest rate set by the Federal Reserve

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.

As long as that spending ends up as checkable deposits in the banking system, the[ ]can operate.

• banking system\money multiplier

• foreign exchange market
• real estate market
• stock market