Understanding Fractional Reserve Banking

What is the primary concept behind the 'infinite money glitch' in modern banking?

• Banks lend out a portion of deposits, creating more money.

• Banks invest all deposits in the stock market.

• Banks create money by printing more currency.

• Banks keep all deposits as reserves.

How does the monetary multiplier effect work in fractional reserve banking?

• By repeatedly lending and depositing money, increasing the total money supply.

• By increasing interest rates on loans.

• By investing in foreign currencies.

• By reducing the reserve requirement to zero.

What is a potential risk of the fractional reserve banking system?

• Banks only accepting large deposits.

• Banks refusing to lend money.

• A bank run where all depositors withdraw their money at once.

• Banks having too much money in reserves.

Why is government-backed insurance like FDIC important in banking?

• It ensures banks can invest in risky ventures.

• It allows banks to operate without any reserves.

• It guarantees all loans will be repaid.

• It protects depositors' money in case of a bank failure.

What role do stress tests play in the banking system?

• They assess the profitability of banks.

• They evaluate the customer service quality of banks.

• They determine the interest rates for loans.

• They simulate scenarios to ensure banks can handle financial crises.