In a System with Fractional-Reserve Banking

question 91

Multiple Choice

In a system with fractional-reserve banking:

• A)all banks hold reserves equal to a fraction of their loans.
• B)no banks can make loans.
• C)the banking system completely controls the size of the money supply.
• D)all banks hold reserves equal to a fraction of their deposits.

Recognize the types of financial intermediaries involved in direct and indirect financial intermediation.

Understand the impact of interest rates on financial markets and the factors that determine interest rates.

Familiarize with the concept of risk premiums and their application to different types of bonds.

Comprehend the qualities and operational aspects of efficient markets, including market reactions to new information.

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Definitions:

Profits And Losses

Financial results indicating the difference between a business's revenues and its costs over a period; profits indicate revenues exceed costs, whereas losses indicate the opposite.

Scarce Resources

Natural, human, and manufactured assets available in limited quantities that are used for the production of goods and services.

Highest Valued Uses

Refers to allocating resources or goods in a manner that maximizes utility or benefits for an individual or society.

Economic Profits

Profits exceeding the total opportunity costs of all resources used in production; also known as abnormal or supernormal profits.