Exploring the Banking System and Money Supply Expansion

The video tutorial explains how money is created, focusing on the role of banks and the fractional reserve banking system. It covers the purpose of banks, how they make profits through loans, and the concept of bank reserves. The tutorial also discusses the risks of bank runs and the role of deposit insurance. It introduces the money creation process through loans and the money multiplier, illustrating how banks can expand the money supply. The video concludes with practical examples and calculations related to the money multiplier.

What is a common misconception about how money is created?

• It is created through international trade

• It is created by the government printing it

• It is generated by stock market investments

• It is mined like gold and silver

What is the primary way banks earn profits?

• By printing money

• By charging account fees

• By making loans and charging interest

• By investing in the stock market

How do banks primarily get the money they lend out?

• Through trading stocks

• From government funding

• By printing it themselves

• From depositors and shareholders

What does a bank's balance sheet consist of?

• Stocks and bonds

• Assets and liabilities

• Loans and deposits

• Cash and digital currency

What is fractional reserve banking?

• A banking system with no interest on loans

• A system where banks lend out a fraction of their deposits

• A system where banks keep all deposits in reserve

• A method of calculating interest on loans

What is the purpose of the required reserve ratio set by the Federal Reserve?

• Both A and B

• To ensure banks have enough cash on hand

• To control the inflation rate

• To limit the amount of money banks can lend

What triggers a bank run?

• A decrease in the stock market

• Many depositors withdrawing their money simultaneously

• A bank announcing new fees

• The government printing more money

What role does the Federal Reserve play in preventing bank runs?

• It prints more money

• It acts as a lender of last resort

• It insures all bank deposits

• It sets the interest rates for loans

What is the money multiplier?

• A formula to calculate interest rates

• A method to determine a bank's profits

• A government tool for controlling inflation

• The ratio of the money supply to the monetary base

What happens to the money supply when banks make loans?

• It fluctuates unpredictably

• It increases

• It stays the same

• It decreases