Asked by
Tsega Worku
on Nov 11, 2024
Verified
Which of the following essential factors enables commercial banks to create money?
A) Required reserves
B) Excess reserves
C) State and local government securities
D) U.S.government securities
E) Net worth
Excess Reserves
The reserves held by financial institutions in excess of the minimum reserve requirements set by central banks; these are not used for lending and can influence the money supply.
Commercial Banks
Financial institutions that provide services such as accepting deposits, providing business and personal loans, and offering basic investment products.
Required Reserves
The minimum amount of funds that a bank must hold in reserve against deposit liabilities, as mandated by central banking authorities.
- Illustrate the sequence of actions by which commercial banks create currency by extending credit.
- Define the differences between excess reserves and required reserves, highlighting their importance in the monetary system.
Verified Answer
AL
Learning Objectives
- Illustrate the sequence of actions by which commercial banks create currency by extending credit.
- Define the differences between excess reserves and required reserves, highlighting their importance in the monetary system.