If People Refused to Use Banks to Create Checkable Deposits

question 96

Multiple Choice

If people refused to use banks to create checkable deposits, the banking system would:

• A) not be affected in the money creating process.
• B) not have a way to loan out excess reserves.
• C) be able to expand the money supply by more than the money multiplier indicates.
• D) not be able to create new money.
• E) not be able to find new borrowers.

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Definitions:

Debt

An amount of money borrowed by one party from another, usually with the condition of repayment with interest.

Put Contract

A financial contract granting the owner the privilege to sell a certain asset at a predetermined price during a set period.

Option Price

The amount paid for the option itself, representing the price to buy (call) or sell (put) an underlying asset by a specific date at a specified price.

Exercise Price

The cost at which an option's possessor has the right to acquire (if it's a call option) or divest (if it's a put option) the asset underlying the option.