Question

A single commercial bank in a multibank 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 33: 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 multibank 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 multibank 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.… 20th Edition

Chapter 33, Problem 4

Instant Answer

Solved by Expert Oluwadamilola Ameobi

02/18/2021

Step 1

Step 1: A bank can only lend funds that exceed its required reserves; the amount available to lend is its reserves above the required level—its excess reserves. Show more…

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A single commercial bank in a multibank 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

Reserve Requirement

This is a regulation set by the central bank that determines the minimum amount of reserves a bank must hold relative to its deposits. It is a critical tool in managing liquidity and ensuring the stability of the banking system, as it limits the amount banks can lend.

Excess Reserves

Excess reserves are the portion of a bank's reserves that exceeds the required minimum set by the reserve requirement. These are the funds that banks can use to make new loans, effectively determining the lending capacity of the bank in the context of a fractional reserve banking system.

Fractional Reserve Banking

This concept refers to a banking system where banks are required to hold only a fraction of their deposits as reserves, allowing them to lend out the remainder. This process facilitates the expansion of the money supply within the economy while ensuring that banks maintain enough reserve to meet withdrawal demands.

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