How Do Banks Create New Deposits

question 66

Multiple Choice

How do banks create new deposits?  

• A) by lending out excess reserves 
• B) by lending out desired reserves 
• C) by raising interest rates on loans 
• D) by calling in loans

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Definitions:

Systematic Risk

The danger that affects the whole market or a specific market segment, referred to as market risk, is unremovable by diversifying investments.

Business-Specific Risk

Refers to the uncertainties faced by a company due to the industry it operates in or the nature of its business operations.

Security Market Line

A representation in financial markets that shows the relationship between risk (as measured by beta) and the expected return of a portfolio or individual security.

Stock Market Equilibrium

A situation where the supply of stocks for sale is equal to the demand, and hence the market price is stable.