fractional reserve banking and the money multiplier

Question 1

what do commercial banks do

Answer 1

create money ( adding to money supply ). under a system of fractional reserve banking, banks are required by the regulators to keep only a minimal proportion of their deposits as cash, this fraction is called the reserve requirement. the rest can be loaned or advance to borrowing at interest

Question 2

money multipler

Answer 2

1/ reserve requirement

Question 3

functions of a central bank

Answer 3

• to help government reach macroeconomic stability
• to bring about financial stability in the monetary system
• to act as a lender of last resort
• controlling the note issue
• acting as the bankers bank
• acting as the government bank
• international obligations