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Questions and Answers
What is the function of the central bank in the context of money and banking?
What is the function of the central bank in the context of money and banking?
- Investing in stock markets to generate profits
- Offering loans and mortgages to individuals and businesses
- Issuing currency and providing banking services to the government
- Regulating the money supply and interest rates to promote economic stability (correct)
How does the money multiplier affect the banking system?
How does the money multiplier affect the banking system?
- It stabilizes interest rates to prevent excessive fluctuations in the economy
- It amplifies the impact of initial deposits on the money supply through the lending process (correct)
- It increases the reserve requirements for banks to mitigate financial risks
- It reduces the amount of money in circulation by limiting lending activities
What is the primary purpose of fractional reserve banking?
What is the primary purpose of fractional reserve banking?
- Ensuring that banks hold a fraction of their deposits as reserves for withdrawals
- Restricting the amount of money in circulation to control inflation
- Expanding the money supply by allowing banks to lend out a portion of deposits (correct)
- Minimizing the risk of bank runs and financial panics
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