Exploring Money and the Money Supply in Fractional Reserve Banking

Exploring Money and the Money Supply in Fractional Reserve Banking

Assessment

Interactive Video

Social Studies

6th - 10th Grade

Hard

Created by

Liam Anderson

FREE Resource

The video tutorial explains the M1 money supply, which includes currency and demand deposits, and the role of banks in influencing this supply. It introduces the concept of reserves, both required and excess, and how banks use balance sheets to manage assets and liabilities. The fractional reserve banking system is discussed, highlighting how banks are only required to keep a fraction of deposits as reserves, allowing them to loan out the rest. This process of loaning creates additional money in the economy, expanding the money supply beyond the original deposits.

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10 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What components make up the M1 money supply?

Currency and demand deposits

Stocks and bonds

Real estate

Gold reserves

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

How do banks influence the money supply through their actions?

By modifying the reserve ratio

By changing interest rates

All of the above

By issuing or recalling loans

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the primary function of bank reserves?

To pay bank employees

To invest in the stock market

To be kept on hand for withdrawals

To purchase real estate

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the purpose of a bank's balance sheet?

To track the bank's profits

To list the bank's employees

To track the bank's assets and liabilities

To advertise the bank's services

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What does the fractional reserve banking system require banks to do?

Lend out a fraction of deposits

Keep all deposits in reserve

Invest a fraction of deposits in government bonds

Keep a fraction of deposits in reserve

6.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the reserve ratio?

The interest rate on loans

The percentage of deposits that must be kept as reserves

The ratio of assets to liabilities

The ratio of loans to deposits

7.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What are excess reserves?

Funds used to pay bank bonuses

Government-issued funds for emergency bailouts

Reserves beyond the required minimum that can be loaned out

Deposits made by the bank's largest customers

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