Econ- 2.3 Part 2 Formative Assessment- Option 2

Organize each definition under the correct term.

Groups:

(a) Fractional Reserve Banking

,

(b) Required Reserve Ratio

,

(c) The Required Reserves

,

(d) The Excess Reserves

• • The dollar amount of each new deposit a bank is allowed to loan.

• The percentage of each new deposit a bank must hold onto and NOT loan out.

• The dollar amount of each new deposit a bank must hold onto and not loan.

• Banks must hold a portion of deposits for withdrawals and can loan out the remaining amount.

Money Creation Starts with (a)  

What specific action by banks causes money to be created?

Answer: (a)  

What happens if banks hold excess reserves?

• The money creation process is halted

• The money multiplier increases

• The possiblie maximum money created will not occur.

• The required reserve ratio increases

What is the formula for the money multiplier?

Answer: (a)  

What is the Required Reserve Ratio if the Money Multiplier is 4?

• 10%

• 20%

• 25%

• 40%

If the Required Reserve Ratio is 5%, what is the Money Multiplier?

• 5

• 10

• 15

• 20

If the Money Multiplier is 4 and the Excess Reserves are $750, the potential maximum money created is ______.

Be Sure to show your work in finding your answer by uploading a pic of the math you did alongside your asnwers.

If the Money Multiplier is 5 and the Excess Reserves are $800, the potential money created is $3500.

• True

• False

Scenario: Jane deposits $500 into her checking account. The required reserve ratio is 5%.

What is the amount of this deposit the initial bank must hold in required reserves?

• $10

• $15

• $25

• $30