QUES TION 39 Any bank can create arn o a amount of money up to the limit specifi

Question

QUES TION 39 Any bank can create arn o a amount of money up to the limit specified in law by Congress o b amount of money up to the limi t specified by the Fed, after which the bank must request the Fed to increase its limt Oc amount of money that is limited by their reserves O d. an amount of money that is limited by their govermment securities e, unlimited amount of money QUESTION 40 The Fed's policy tools include o a.setting regulations for lending standards and approving or rejecting loans banks make to large corporations b. holding deposits for the U.S government, reserve requirements, and the discount rate c. required reserve ratios, the discount rate, and open market operations d supervision of the banking system and buying and selling commercial banks e. required reserve ratios, income tax rates, and open market operations

Explanation / Answer

39. Option C

Explanation: The maximum amount of money that can be created by a bank depends on money multiplier. Money multiplier depends on the reserve ratio i.e. the percentage of total deposits that a bank needs to keep with the Fed as a reserve. Money multiplier = 1/Reserve Ratio. Therefore, the maximum amount of money that can be created by commercial banks is limited by reserve requirements.

40. Option C

Explanation: The Fed’s main roles are to promote stable economic growth, contain inflation, and ensure price stability through regulating the money supply. The Fed achieve these objectives by regulating discount rates (the rate at which banks lend each other to meet reserve requirements), reserve ratio (the percentage of total deposits that a bank needs to keep with the Fed as a reserve), and open market operations (buying and selling securities to control money supply).

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.