(Answered) 1 when a commercial bank makes loans it creates money when

Economics

1. "When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed." Explain.

2. "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.

3. 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?

4. Explain why merchants accepted gold receipts as a means of payment even though the receipts were issued by goldsmiths, not the government. What risk did goldsmiths introduce into the payments system by issuing loans in the form of gold receipts?

5. What is the basic objective of monetary policy? What are the major strengths of monetary policy? Why is monetary policy easier to conduct than fiscal policy?

6. "The potentially valid arguments for tariff protection--military self-sufficiency, infant industry protection, and diversification for stability--are also the most easily abused." Why are these arguments susceptible to abuse?

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