M2 - The banking Activity

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Multimedia activity 2Created by Judit Mendoza Aguilar

Quiz The bank money multiplier

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5%

2%

By law, a credit institutions' reserve ratio will always be greater than...

Question 1/5

QUIZ The bank money multiplier

Explanation: The European Central Bank establishes a minimum of 1% bank reserves, the legal cash ratio or minimum reserve ratio (MRR). Therefore, by law, a credit institutions' reserve ratio will always be greater than 1%.

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111.000

99.900

11.100

How much bank money can be created with an initial 333 euros and a reserve ratio of 3%?

Question 2/5

Explanation:333 / 0.03 = 11.100

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QUIZ The bank money multiplier

The less MRR the less money supply

The less MRR the more legal reserve

The less MRR the more money supply

Select the right sentence relating legal cash ratio (MRR), money suply and legal reserve

Question 3/5

Explanation: We know that one of the main functions of banking activity is the creation of bank money. The smaller the MRR, the more can be lend by the banks. As the money supply is the total of the legal money plus the bank money circulating in the economy, the smaller the legal cash ratio the greater the bank money, and so the money supply.

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The bank money that can be created with a a reserve ratio of 2% is...

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more than the money that can be created with a 1% ratio

more than the money that can be created with a 10% ratio

less than the money that can be created with a 5% ratio

Question 4/5

Explanation: Banks can create more bank money the smaller the Minimum Reserve Ratio is.

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The minimum reserve ratio is always greater than the money multiplier

The bank money multiplier matches the inverse of the minimum reserve ratio.

The bank money multiplier is twice the legal cash ratio

Only one of the following sentences is correct. Click on it to end this Quiz!

Question 5/5

Explanation:The relation between the bank money multiplier and the legal cash ratio, established by European Central Bank in 1% since January 2012, is 1/x (inverse relation).

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