Which of the Following Is False

question 64

Multiple Choice

Which of the following is false?

• A)​The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans.
• B)​With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000.
• C)​With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits.
• D)​When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits.

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Definitions:

Bank Overdrafts

Happens when the amount taken out of a bank account surpasses what is in the account, leading to a negative balance.

Non-current Assets

Long-term investments or assets that are not expected to be converted into cash or used up within the business cycle of one year or the operating cycle, whichever is longer.

Bank Indebtedness

A financial obligation or debt to a bank, often in the form of loans, overdrafts, or lines of credit.

Current Liability

An obligation that a company is expected to pay within the next year or within the normal operating cycle.