How Is It That the Banking System Is Able to Lend

question 121

Multiple Choice

How is it that the banking system is able to lend by a multiple of its excess reserves?

• A) Banks only have to hold a fraction of their deposits as reserves and can lend the rest to borrowers.
• B) Banks are required to hold only enough cash to meet the withdrawal needs of depositors.
• C) Loans can be made to borrowers.
• D) Required reserves have to be vault cash.
• E) Banks must hold their required reserves at the Federal Reserve.

---

Definitions:

Predetermined Overhead Rate

An estimated charge used to distribute overhead costs to products or projects, based on an expected standard, allowing for cost allocation before actual expenses are known.

Variable Component

The portion of costs or expenses that varies directly with changes in production volume or business activity.

Fixed Component

The portion of a cost or expense that remains constant regardless of the level of production or business activity.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders, based on a chosen activity base.