Question

1) A commercial bank create money by:

a-Lending its excess reserves

b-Purchasing currency from the central bank

c-Buying bonds from the central bank

d-Printing more checks

5)The money multiplier determines how much:

Real GDP will be expanded given an increase in autonomous investment

The monetary base will be expanded given a change in the quantity of money

The quantity of money will be expanded given a change in the monetary base

Money demand will expand given a change in the quantity of money

Answer 1

Question 1

Money creation is an important function of banks.

Bank create money when they make new loans. A bank is able to make loans upto the level of excess reserves held by it.

So,

A commercial bank create money by lending its excess reserves.

Hence, the correct answer is the option (a).

Question 5

Money multiplier indicates the magnitude of increase in money supply in an economy due to a given increase in reserves with the banking system.

Reserves are part of monetary base.

So,

The money multiplier determines how much the quantity of money will be expanded given a change in the monetary base.

Hence, the correct answer is the option (c).