Asked by Jimmy Miller on Apr 27, 2024
Verified
A commercial bank can safely lend out its
A) total reserves.
B) excess reserves.
C) requires reserves.
D) demand deposits.
Excess Reserves
The funds that banks hold over and above the legal requirement set by a central bank or banking regulator.
Commercial Bank
A firm that engages in the business of banking, accepting deposits, offering checking accounts, and making loans.
- Acknowledge the significance of the deposit expansion multiplier in the context of banking.
Verified Answer
SH
Sherry HightowerMay 04, 2024
Final Answer :
B
Explanation :
Excess reserves are the amount of reserves that a bank holds above the required reserves set by the Federal Reserve. These excess reserves can be used by the bank to make loans, which allows for economic growth and earning interest for the bank. Lending out total reserves or required reserves can lead to a bank not having enough funds to meet withdrawal demands from its depositors. Demand deposits are funds held in checking accounts by depositors, which banks are required to hold in reserves but cannot lend out.
Learning Objectives
- Acknowledge the significance of the deposit expansion multiplier in the context of banking.