Lecture 3 - Clicker Questions

. If the currency-deposit ratio is 0.7 and the reserve-deposit ratio is 0.2, what is the money multiplier?

1.89

The Fed sees that commercial banks hold adequate reserves by:

paying the banks interest on their reserves.

Which is NOT a role money plays in the economy?

Factor of production

What enables money creation in addition to that directly created by the central bank?

Fractional-reserve banking

. The Fed's strategy of buying long-term, riskier assets in response to the Great Recession is known as:

quantitative easing.

Which is NOT a variable determining the supply of money?

The marginal propensity to save

Which statement is TRUE?

The system of fractional-reserve banking creates money but not wealth

A bank's total assets relative to the bank owners' equity is the:

leverage ratio.

The use of borrowed funds to make investments is called:

leveraging.

An example of fiat money is:

paper bills.