Money Multiplier Quiz

What happens to the money that is not kept as reserves in the credit creation process?

• It is destroyed

• It is loaned out

• It is saved

• It is taxed

What is the purpose of keeping reserves in the credit creation process?

• To increase profits

• To ensure liquidity

• To pay taxes

• To invest in stocks

What is the effect of a higher reserve requirement on the credit creation process?

• More money is loaned out

• Less money is loaned out

• No effect

• Increases bank profits

What fraction of what they owe do commercial banks typically hold?

• 1/10

• 1/2

• 1/5

• 1/1

What was the reaction of banks to the sub-prime mortgage crisis?

• They increased lending

• They stopped lending to each other

• They lowered interest rates

• They expanded their operations

What financial crisis began in the United States that affected Northern Rock?

• The Great Recession

• The sub-prime mortgage crisis

• The Asian financial crisis

• The European debt crisis

How do banks keep track of their customers' deposits?

• By storing cash in vaults

• By using entries in the records

• By issuing paper receipts

• By using blockchain technology

What risk arises if banks keep too low a liquidity ratio?

• A risk of a "run" on the banking system.

• A risk of increased profits.

• A risk of reduced lending.

• A risk of higher interest rates.

What is banking based on?

• Trust

• Confidence

• Wealth

• Security

What is the primary function of a central bank in the banking system?

• To provide loans to individuals

• To regulate interest rates

• To invest in foreign markets

• To print money