Fractional Reserve Banking

The video explains how banks traditionally used gold reserves but now rely on fractional reserve banking, where they lend out more money than they hold. This system allows economic growth but poses risks during crises, as seen with Northern Rock in 2007. Some people prefer gold for its stable value.

What was the traditional basis for banks lending money?

• The stock market performance

• The interest rates set by the central bank

• The amount of customer deposits

• The value of gold reserves they held

What is the reserve ratio for smaller banks in America with deposits up to $71 million?

• 5%

• 10%

• 7%

• 3%

How much must a bank with $200 million in deposits hold in reserve?

• $10 million

• $25 million

• $15 million

• $20 million

What is a potential flaw of fractional reserve banking?

• Banks cannot lend money

• Banks might not have enough reserves for withdrawals

• Banks cannot invest in the stock market

• Banks must hold 100% of deposits in reserve

Why do some people prefer to trust gold over banks?

• Gold is more profitable

• Gold is easier to store

• Gold has maintained its value over time

• Gold is less risky than stocks