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:

Dollar-Denominated Deposit

A deposit at a bank or financial institution available in U.S. dollars, regardless of the location of the bank or the nationality of the depositor.

Eurodollars

U.S. dollar-denominated deposits held in banks outside the United States, not under jurisdiction of the Federal Reserve.

Municipal Bonds

Debt securities issued by a state, municipality, or county to finance its capital expenditures, typically offering tax-free interest payments to investors.

Debt Obligation

A legally binding agreement to repay borrowed money, typically with interest, at predefined dates in the future.