AP Macroeconomics : Macro - Money and Banking Quiz

Quiz
*Theme/Title:	Macro - Money and Banking
* Description/Instructions
Banks are the conduit for monetary policy, provide safety for depositors, and make loans. In the early 1930's, "bank runs" would bankrupt banks and depositors would lose their savings. As a result, banking policies were put into place. One safe guard was "fractional reserve" banking where a part, or a fraction of a deposit, was required to ensure that a depositor would have funds available on demand. This is why checking accounts are called, "demand deposits." The bank keeps a fraction of the deposit as required reserves, but the fraction that can be loaned out are called "excess reserves." When excess reserves are loaned out, the M1 money supply expands by ΔER/RR, where ER is the change in excess reserves and RR is the reserve ratio.
Group:	AP Macroeconomics AP Macroeconomics Quizzes
Topic:	AP Macroeconomics

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