The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits. Describe why this statement is or is not true
This statement is not true.
Banks can create money through the multiplier effect. However, bank deposits do not increase wealth in the economy. This is because every deposit in a bank results in an offsetting increase in liabilities within the economy. Although bank deposits can lead to money creation, wealth remains unchanged.
You might also like to view...
Under SFAS No. 13, equal monthly rental payments for a particular lease should be charged to rental expense by the lessee for which of the following?
Capital lease Operating lease a. Yes No b. Yes Yes c. No No d. No Yes
Consider the stock of ocean tuna which is massively overfished. It is rational for an individual to exploit the resource rather than to conserve the stock because
A) the marginal private benefit of harvesting tuna is lower than the marginal social benefit of harvesting it. B) the marginal private cost of harvesting the fish is lower than the marginal social cost. C) the marginal social cost of harvesting the fish is lower than the marginal private cost. D) the marginal private benefit of harvesting tuna is higher than the marginal social benefit of harvesting it.
Other things constant, the elimination of factor price distortions in developing countries would most likely
(a) decrease rural-urban migration. (b) have little effect on rural-urban migration. (c) increase rural-urban migration. (d) increase urbanization.
Government policies can affect the supply of a good by: a. affecting the level of output of the good
b. affecting the cost of production of the good. c. affecting the nature of demand in the economy. d. affecting the income of the consumers.