Money, banks, & federal pt 2

Question 1

monopoly position

Answer 1

One “king” business/good/service. can charge high for mediocre output. typically BAD for consumer, good for business

Question 2

species of banks

Answer 2

1. commercial
2. investment
3. central bank (every country has one

Question 3

how do banks create $

Answer 3

reserves (cash deposit in the vault.)
These reserves can be loaned out but there will always be some left.

Question 4

required reserves

Answer 4

reserves a bank is legally required to hold (based on lvl. of checking deposits)
(side note: the US doesn’t function under these as of recent)

Question 5

required reserve ratio (RRR)

Answer 5

minimum fraction of deposits the bank is required to keep (side note: in US it is 0%)

Question 6

what happens to money supply if RRR goes up

Answer 6

the money supply would get smaller/less reserves are loaned out & even less $ is returning

Question 7

if everyone wanted to pull all $ at the same time

Answer 7

banks won’t be able to loan (aka they cant function. Lots of economic activity would become unavailable)

Question 8

Bank run

Answer 8

many of a banks depositors try to withdraw funds b/c of fear of bank failure (contagious to other banks as well)

Question 9

Deposit insurance

Answer 9

banks depositors will be paid even if the bank cant come up w/ funds.

Question 10

what does FDIC guarantees

Answer 10

First $250,000 of each acc.

Question 11

deposits & withdraws

Answer 11

deposits are more/less equal to withdraws

Question 12

if a bank is low on reserves sometimes..

Answer 12

banks will lend to one another (usually short-term) or borrow from “lender of last resort”