Commercial Banks Are Able to Create Money by

question 569

Multiple Choice

Commercial banks are able to create money by

• A) printing Federal Reserve Notes.
• B) making loans.
• C) making customers pay back their loans.
• D) exchanging their reserves at the Fed for currency.

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Definitions:

Opportunity Cost

The value of the best alternative that is foregone when a particular course of action is chosen.

Incremental Cash Flow

is the additional cash flow generated by a company from a new project or investment, used to analyze the profitability of taking on the new project.

Sunk Cost

A cost that has already been incurred and cannot be recovered, which should not influence future business decisions.

Fixed Cost Financing

A financing strategy where the costs remain constant regardless of the level of production or sales.