Banking 4 - Multiplier Effect and The Money Supply Flashcards
1
Q
why are reserves kept?
A
in case depositors withdraw
2
Q
can money produced via the multiplier and fractional reserve banking represent real wealth?
A
yes
if the projects that the money was borrowed for result in future wealth
e.g., loan taken out by borrower is used to start business which derives real assets and value in the economy
3
Q
what is the purpose of gold?
A
was used to represent wealth
4
Q
what is M0/MB?
A
tangible coins
money in its purest form
5
Q
what is M1?
A
M0 + checkable deposits + reserve deposits
6
Q
what is M2?
A
M1 + savings accounts + money market accounts + certificates of deposits (CDs)
