question
What is a bank's balance sheet?
answer
assets= liabilities + O.E.
things you own= things you owe + owner's share
things you own= things you owe + owner's share
question
What are the major assets of an average bank?
answer
loans and securities
question
What are the major liabilities of an average bank?
answer
savings and time deposits (CDs)
question
What is the fractional reserve system?
answer
Financial intermediaries maintain reserves (cash) equal to only a portion of their deposits
question
What is a primary deposit?
answer
deposits that represent new reserves (cash) brought into the banking system
question
What do we mean when we say that a bank "creates" money?
answer
it makes loans though its excess reserves (single bank)
banking system- can increase money supply by multiple accounts
banking system- can increase money supply by multiple accounts
question
What are reserve requirements, required reserves, and excess reserves?
answer
reserve requirements- % of primary deposits banks must keep on reserve either w/ FED or as vault cash
required reserves- the dollar amount of primary deposits that must be kept on reserve
excess- the $ amounts of reserves that are kept above the required reserves
required reserves- the dollar amount of primary deposits that must be kept on reserve
excess- the $ amounts of reserves that are kept above the required reserves
question
Where do banks keep their required reserves?
answer
FED
vault cash
vault cash
question
What is the monetary multiplier and how does it affect the money-creation process?
answer
1/required reserve ratio
excess reservesxMM= maximum money supply expansion
excess reservesxMM= maximum money supply expansion
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