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
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.
A commercial bank create money by lending its excess reserves.
Hence, the correct answer is the option (a).
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.
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).
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