A Bank Might Make Mortgages to People in Different Regions

question 87

Multiple Choice

A bank might make mortgages to people in different regions of the country.By doing so

• A)the bank reduces the risk it faces from falling house prices in its region and falling prices in all regions.
• B)the bank reduces the risk it faces of falling house prices in its region but not from falling prices in all regions.
• C)the bank reduces the risk it faces of falling house prices in all regions,but not the risk it faces from falling house prices in its regions.
• D)the bank reduces neither the risk it faces from falling house prices in its region nor falling prices in all regions.

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Definitions:

Excess Reserves

The amount of reserves held by banks over and above the regulatory requirements, indicating extra liquidity.

Money Supply

The collective amount of cash, coins, and checking and savings account balances representing monetary assets in an economy at a given time.

Federal Reserve

The central banking system of the United States, responsible for setting monetary policy, issuing currency, and regulating banks.

Create Money

The process by which the money supply of a country is increased, usually by the actions of its central bank or government through mechanisms like printing currency or credit creation.