Which of the Following Is True About Banks in a Fractional

question 110

Multiple Choice

Which of the following is true about banks in a fractional reserve banking system?

• A) Banks are able to create money when excess reserves are lent to individuals who need to borrow money.
• B) Banks can lend all of the deposits that are received.
• C) Banks must purchase gold that equals the value of the deposits received.
• D) Banks must deposit all cash from depositors with the Federal Reserve.
• E) Banks have to deposit all cash from depositors in their own bank vault.

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Definitions:

Loanable Funds

The market where savers supply funds for loans to borrowers.

Borrowers

Individuals or entities that take funds from a lender with the intention of paying back the borrowed amount plus interest.

Downsloping

A term describing a downward trend or decrease, often used in economics to refer to declining prices or demand curves that slope downwards as price increases.

Nominal Interest

is the stated interest rate of a loan or financial product, not adjusted for inflation, representing the face value of the interest charged or earned.