Asked by Nakaila Lovett on Jul 22, 2024
Verified
An individual bank can create deposits to the extent of its
A) excess reserves.
B) required reserves.
C) total reserves.
D) deposits.
E) net worth.
Excess Reserves
The reserves banks hold over and above the legal requirement set by the central bank, often seen as a precautionary measure.
Individual Bank
An individual bank refers to a financial institution dealing with deposits and loans of consumers and businesses, distinguishing itself by offering personalized banking products and services.
- Understand the concept of excess reserves and its implications for banking operations and lending.
Verified Answer
KC
Kayla CowhyJul 24, 2024
Final Answer :
A
Explanation :
An individual bank can create deposits to the extent of its excess reserves, which is the amount of funds that the bank has available to lend out after keeping the required reserves with the central bank. The bank can use these excess reserves to extend loans and create new deposits, thereby increasing the money supply in the economy. However, the bank cannot create deposits beyond its excess reserves, as it would face a shortage of reserves and may have to borrow from other banks or the central bank to meet its reserve requirements.
Learning Objectives
- Understand the concept of excess reserves and its implications for banking operations and lending.