Quiz: How Dollars Are Born 4 questions · 80% to pass 1. In a fractional reserve system with a 10% reserve requirement, what is the theoretical money multiplier?2510100The money multiplier equals 1 divided by the reserve ratio. At 10% reserves (0.10), the multiplier is 1/0.10 = 10. A single $1,000 deposit can generate up to $10,000 in total deposits.2. Most US dollars exist as:Physical paper billsGold certificates held by the TreasuryDigital entries in bank ledgersTreasury bondsRoughly 90% of the US money supply exists as digital accounting entries in bank ledgers, created through the fractional reserve lending process. Physical currency accounts for only about 10%.3. When the Federal Reserve buys Treasury bonds from banks, what happens to the money supply?It decreasesIt stays the sameIt increasesIt converts to gold reservesWhen the Fed buys bonds, it credits bank reserve accounts with new money. Those reserves then flow through the fractional reserve multiplier, expanding the total money supply.4. As of March 2020, the Federal Reserve's required reserve ratio for banks is:10%5%3%0%In March 2020, the Fed reduced the reserve requirement to 0%. Banks are no longer formally required to hold any fraction of deposits in reserve, though capital adequacy requirements and operational needs still constrain lending. Check answers Retake quiz Back to lesson Next lesson →