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MMLU-Pro / 7461 / Why is it that the banking system as a whole can produce a multiple expansion of…

Problem

Answer published by the source. Consult the official source to check your work against its answer.

question

Why is it that the banking system as a whole can produce a multiple expansion of deposits while a single bank within that system cannot?

category

economics

options

  1. The expansion of deposits is regulated by a central authority that dictates the exact amount each bank can lend.
  2. Each bank is required to convert all deposits into long-term investments, eliminating the potential for deposit expansion.
  3. Banks operate independently without any interbank transactions, so deposits in one bank do not influence another.
  4. The deposit expansion only occurs within one bank.
  5. Banks do not need to keep a certain percentage of their deposits as reserves.
  6. Each bank within the system retains all deposits without lending, preventing any expansion of deposits.
  7. The banking system can produce a multiple expansion of deposits because when loans from one bank become deposits in other banks, these deposits are partly used to make new loans, increasing total deposits in banks taken together by a multiple of the increase in the deposits of any one of them.
  8. Each bank can lend out the entire amount of its deposits.
  9. Single banks can lend an unlimited amount without affecting the overall banking system's deposit levels.
  10. The banking system relies on a single reserve that is shared equally among all banks, ensuring uniform deposit expansion.

src

stemez-Economics

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Source and history

upstream_id / Original problem ID
7461
task_id
57f117db-517f-595b-ae10-d1cbe381c55a
task_key
default--test--7461
task_revision_id
1
config / split
default / test

Official source

initial import