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7 marksMonetary Theory and Policy

CAPE Economics Unit 2 · 2014 · Paper 2 · Question 4(c)(ii)

With the use of an example, describe how commercial banks use a 'fractional reserve banking system' to create money.

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Other parts of this question

  1. 4(a)(i)Define the term 'balanced budget multiplier'.[2 marks]
  2. 4(a)(ii)Explain the term 'automatic stabilizer'.[3 marks]
  3. 4(a)(iii)Identify TWO examples of automatic stabilizers.[2 marks]
  4. 4(b)(i)Explain how government borrowing to finance fiscal deficits can have a negative impact on Inflation.[3 marks]
  5. 4(b)(ii)Explain how government borrowing to finance fiscal deficits can have a negative impact on Domestic investment.[3 marks]
  6. 4(b)(iii)Explain how government borrowing to finance fiscal deficits can have a negative impact on Domestic interest rates.[3 marks]
  7. 4(c)(i)Define the term 'fractional reserve banking system'.[2 marks]

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