Why is the banking system in the United States referred to as a fractional reserve bank system? What is the role of deposit insurance in a fractional reserve system?
3. What is the difference between an asset and a liability on a bank's balance sheet? How does the net worth relate to each? Why must a balance sheet always balance? What are the major assets and claims on a commercial bank's balance sheet?
"Whenever currency is deposited in a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced." Do you agree? Explain why or why not.
6. "When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed." Explain.