How do banks create money? The First National Bank currently has $25,500 in depo

Question

How do banks create money?

The First National Bank currently has $25,500 in deposits, and faces a 10% reserve requirement. It currently has $3,825 in reserves. Its reserve ratio is:

During an economic boom, banks often hold _____ excess reserves, which makes the money multiplier _____.

If the reserve requirement is 5% and banks are holding excess reserves, the money multiplier:

Each member of the Fed's Board of Governors serves a _____-year term.

How many members are on the Fed's Board of Governors?

Which regional Federal Reserve Bank President is always a member of the Federal Open Market Committee?

Explanation / Answer

1) B. Bank create money by lending excess reserves

2) B. reserve ratio=3875/25500*100=15%

3) C During economic boom, banks typically lends out more money which makes fewer excess reserves and higher multiplier.

4) A. When excess reserve is there, reserve ratio for banks>5% which means multiplier=1/r<20

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