Read the two statements and choose the correct option.
I. Deposit creation is larger if borrowers hold part of their loans as cash.
II. Deposit creation is smaller if banks keep reserves above the required level.

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

Show the answer and explanation

CorrectNot quiteAnswer B

Correct answer: B

Cash kept outside banks does not come back as deposits, so creation is smaller. I is false.
Excess reserves are funds not lent, which also cuts creation. II is true.

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. Deposit creation is larger if borrowers hold part of their loans as cash.II. Deposit creation is smaller if banks keep reserves above the required level.