Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
An increase in required reserves decreases the total money supply.
B
T-accounts visually represent the relationship between a bank's assets and liabilities, influencing its lending capacity.
C
Excess reserves can be utilized by banks to increase their lending without affecting the required reserve ratio.
D
A decrease in deposits will automatically increase a bank's required reserves.
E
T-accounts show that banks can lend out their entire deposit amounts without maintaining any reserves.
Understanding the Answer
Let's break down why this is correct
Answer
T-accounts are a useful tool for banks to track their financial transactions, showing how money flows in and out. When a bank receives deposits, its reserves increase, and this allows the bank to lend more money, which can increase the overall money supply in the economy. For example, if a person deposits $1,000, the bank's reserves go up by that amount, and it can lend out a portion of it, creating new money. However, banks must keep a certain percentage of deposits as reserves, so not all deposited money can be lent out. Understanding T-accounts helps us see how banks manage their reserves and how this affects the larger economy.
Detailed Explanation
All the statements provided misunderstand how T-accounts and reserves work in banking. Other options are incorrect because This statement suggests that having more required reserves means less money to lend; T-accounts do show a bank's assets and liabilities, but they don't directly limit lending.
Key Concepts
T-Accounts
Bank Reserves
Money Supply
Topic
T-Accounts and Bank Reserves
Difficulty
hard level question
Cognitive Level
understand
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