Read the two statements and choose the correct option.
I. A higher reserve ratio leaves banks with less to lend from each deposit.
II. A bank's reserves earn the same interest as its loans.

Only ICorrect answerYour answerOnly IICorrect answerYour answerBoth I and IICorrect answerYour answerNeither I nor IICorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Lendable share = 1 − reserve ratio, which falls as the ratio rises. I is true.
Cash reserves earn little or nothing; that is why banks lend the rest. II is false.

Ten questions from Money Creation by Banks, at your own pace.

Ten questions from Money Creation by Banks, at your own pace.

Read the two statements and choose the correct option.I. A higher reserve ratio leaves banks with less to lend from each deposit.II. A bank's reserves earn the same interest as its loans.