Assume we have a simplified banking system in balance-sheet equilibrium. Also assume that all banks are subject to a uniform 10 percent reserve requirement and checkable deposits are the only form of money. A commercial bank receiving a new checkable deposit of 100 would be able to extend new loans in the amount of:
a. 10.
b. 90.
c. 100.
d. 1,000.
Question 2
The vicious circle of poverty refers to a condition where:
a. c and d.
b. c and e.
c. people are poor because they cannot invest in capital goods and they cannot invest in capital goods because they are poor.
d. people cannot invest in capital goods because they are poor and they are poor because they cannot invest in capital goods.
e. poverty is relative and poor people remain poor because the wealthy grow wealthier.
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The Economics of Money, Banking and Financial Markets, Business School Edition