Questions in Economics Question1 Which statement best describes fractional reser

Question

Questions in Economics

Question1 Which statement best describes fractional reserve banking? Oa. A bank's equity capital is a fraction of its liabilities 0 b. Banks provide loans with interest rates containing fractions of a per cent Oc. Banks place a fraction of customer deposits in cash reserves Od. The Central Bank provides loans to banks at half the interest rate that banks charge customers Question 2 Which statement is false? Oa. Solvency regulations ensure that banks' assets are well above their liabilities Ob.A banking crisis where banks experience large withdrawals is bad for the economy Oc. The goal of tighter banking regulations is to reduce the likelihood of a banking crisis in the long run d. Equity capital is the value of the bank's assets plus the value of its liabilities e. Two types of "insurance" from banks are deposit insurance and bank guarantees

Explanation / Answer

1. Fractional reserve banking is the practice where every bank is required to hold a fraction of their deposit liabilities as cash reserves.

Answer- option C.

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