Question

A single commercial bank in a multi-bank banking system can lend only an amount equal to its initial preloan_____________. a. Total reserves. b. Excess reserves. c. Total deposits. d. Excess deposits.

Name: Problem 4, Chapter 35: Economics: Principles, Problems, and Policies
Uploaded: 2021-02-18T01:38:28-08:00
Duration: 1 min 37 s
Channel: Oluwadamilola Ameobi
Description: A single commercial bank in a multi-bank banking system can lend only an amount equal to its initial preloan. a. Total reserves. b. Excess reserves. c. Total deposits. d. Excess deposits.

   A single commercial bank in a multi-bank banking system can lend only an amount equal to its initial preloan_____________.
a. Total reserves.
b. Excess reserves.
c. Total deposits.
d. Excess deposits.

Economics: Principles, Problems, and Policies

Campbell R.… 21st Edition

Chapter 35, Problem 4

Instant Answer

Solved by Expert Oluwadamilola Ameobi

02/18/2021

Step 1

In banking, "total reserves" refers to the total amount of cash a bank has on hand. "Excess reserves" refers to the cash that banks choose to hold over and above the legal requirement. "Total deposits" refers to the total amount of money deposited in a bank, and Show more…

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A single commercial bank in a multi-bank banking system can lend only an amount equal to its initial preloan_____________. a. Total reserves. b. Excess reserves. c. Total deposits. d. Excess deposits.

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Key Concepts

Required Reserves

These are the minimum amounts of funds that banks must hold in reserve against deposits, as mandated by regulatory policy. The required reserves act as a safeguard to ensure that banks have enough liquidity to meet withdrawal demands and other obligations.

Fractional Reserve Banking

This is a banking system in which banks are required to keep only a fraction of their deposits as reserves, while the rest can be used to make loans. It is the fundamental system that allows banks to create money through lending, subject to reserve requirements set by regulatory authorities.

Excess Reserves

Excess reserves refer to the funds that banks hold beyond the required minimum. In a fractional reserve system, it is only these excess reserves that are available for lending to customers. The question highlights that a bank's ability to extend credit is limited to the extent of its excess reserves prior to engaging in further lending.

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