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Economics

Economics

Option 1:

Evaluate the following statement:

“Since any bank can only lend out its excess reserves, an increase in the monetary base that provides banks with excess reserves leads to a dollar for dollar increase in the money supply through bank lending.”

Option 2:

Evaluate the following statement:

“Banks must walk a tightrope between illiquidity and unprofitability because the prudent policies such as holding lots of reserves that maintain liquidity reduce profitability.”

Option 3:

In what way is it true that “banks make money by making money”?