A bank creates money when it:
a. gets new checkable deposits which the depositor formerly held as cash.
b. has a loan paid off, which creates excess reserves for the bank.
c. makes a loan from its excess reserves.
d. holds back excess reserves because of an increase in the required reserve ratio.
e. gets more excess reserves because of a decrease in the required reserve ratio.
Question 2
Which of the following statements draws a false conclusion?
a. Life expectancy in an average African country is lower than in an average European country; therefore Europeans can expect to outlive Africans.
b. Nations that currently produce no capital goods, and whose inhabitants are hungry, risk famine with internally funded capital investments.
c. Some African nations have substantially more food and capital investment than others; therefore, their standard of living is higher.
d. Population reduction policies, if effective, can improve the nation's wealth by increasing real per capita GDP.
e. The vicious circle of poverty argument states that poverty precludes capital investment and that no capital investment perpetuates poverty.
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