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services.","correct":true,"explanation":"These are the three core functions: commercial banks take deposits, provide loans to households and firms, and enable payments such as transfers, card transactions, and direct debits."},{"text":"Creates shares, lends to governments, and provides insurance services.","correct":false,"explanation":"Share creation and insurance are not the three main commercial banking functions. Commercial banks accept deposits, lend to households and firms, and provide payment services."},{"text":"Sets interest rates, sells bonds to households, and collects taxes.","correct":false,"explanation":"Commercial banks do not set the economy-wide interest rate or collect taxes. Their main functions are accepting deposits, lending to households and firms, and providing payment services."},{"text":"Prints currency, lends only to firms, and manages government spending.","correct":false,"explanation":"Commercial banks do not print currency, lend exclusively to firms, or manage government spending. Their three main functions are accepting deposits, lending to households and firms, and providing payment services."}]},{"id":"07fac3d2-cd91-445f-965e-f12be52644ba","cardType":"basic","points":1,"front":"How does an investment bank differ from a commercial bank?","back":"An investment bank mainly trades securities and advises firms.","mcqOptions":[{"text":"An investment bank mainly trades securities and advises firms.","correct":true,"explanation":"Investment banks specialise in activities such as trading securities, underwriting, and advising firms on mergers, acquisitions, and raising finance, rather than primarily taking ordinary customer deposits."},{"text":"An investment bank mainly accepts deposits and provides payment services.","correct":false,"explanation":"Accepting deposits and providing payment services are characteristic commercial bank activities. Investment banks mainly trade securities and advise firms on financial transactions."},{"text":"An investment bank mainly lends to households and manages current accounts.","correct":false,"explanation":"Household lending and current-account management are mainly commercial banking activities. Investment banks mainly trade securities and advise firms on raising finance and corporate transactions."},{"text":"An investment bank mainly collects taxes and regulates commercial banks.","correct":false,"explanation":"Tax collection and banking regulation are public-sector or regulatory functions, not the defining role of investment banks. Investment banks mainly trade securities and advise firms."}]},{"id":"86975042-a3f0-43f0-a487-250bb8e3a85b","cardType":"basic","points":2,"front":"Why can universal banking increase systemic risk?","back":"Losses from trading could threaten ordinary deposits, increasing systemic risk.","mcqOptions":[{"text":"Losses from trading could threaten ordinary deposits, increasing systemic risk.","correct":true,"explanation":"Universal banks combine commercial and investment banking. Trading losses can therefore weaken the institution holding ordinary deposits, potentially spreading panic and threatening the wider financial system."},{"text":"Profits from deposits could threaten government revenue, increasing systemic risk.","correct":false,"explanation":"Deposit profits do not directly threaten government revenue in this way. The systemic-risk concern is that trading losses may threaten ordinary deposits held within the same universal bank."},{"text":"Losses from lending could reduce share prices, eliminating all market risk.","correct":false,"explanation":"Lending losses may reduce share prices, but this does not eliminate market risk. Universal banking increases systemic risk when trading losses can threaten ordinary customer deposits."},{"text":"Trading gains could reduce ordinary deposits, decreasing systemic risk.","correct":false,"explanation":"Trading gains would generally strengthen a bank rather than threaten deposits, and reducing deposits would not necessarily decrease systemic risk. The danger is trading losses affecting ordinary deposits."}]},{"id":"9d77bbaa-b907-4816-aaca-5c335f8cc029","cardType":"basic","points":1,"front":"What three objectives does a commercial bank pursue?","back":"

Liquidity
Profitability
Security

","mcqOptions":[{"text":"

Liquidity
Profitability
Security

","correct":true,"explanation":"Commercial banks must balance liquidity, profitability, and security. They need funds available for withdrawals, sufficient returns for owners, and protection against excessive lending risk."},{"text":"

Inflation
Employment
Growth

","correct":false,"explanation":"Inflation, employment, and growth are macroeconomic objectives usually associated with government and central-bank policy. A commercial bank’s objectives are liquidity, profitability, and security."},{"text":"

Taxation
Exporting
Consumption

","correct":false,"explanation":"Taxation, exporting, and consumption are not the three objectives guiding commercial bank management. Banks pursue liquidity, profitability, and security when managing their assets and liabilities."},{"text":"

Borrowing
Spending
Regulation

","correct":false,"explanation":"Borrowing and spending are economic activities, while regulation is mainly performed by authorities. Commercial banks instead aim to maintain liquidity, profitability, and security."}]},{"id":"a4146253-9b60-4c3b-9cdb-c13ccd16adca","cardType":"basic","points":1,"front":"What does liquidity mean for a commercial bank?","back":"Liquidity means holding enough readily available funds to meet withdrawals.","mcqOptions":[{"text":"Liquidity means holding enough readily available funds to meet withdrawals.","correct":true,"explanation":"Liquidity is a bank’s ability to meet withdrawals and other immediate obligations. Holding readily available funds, such as reserves, helps ensure customers can access their money when required."},{"text":"Liquidity means holding enough long-term investments to maximise returns.","correct":false,"explanation":"Long-term investments may be profitable but cannot always be converted into cash quickly without loss. Liquidity means holding readily available funds to meet withdrawals."},{"text":"Liquidity means holding enough physical currency to eliminate all lending risk.","correct":false,"explanation":"Physical currency is liquid, but banks do not need to hold enough of it to eliminate all lending risk. Liquidity means maintaining readily available funds for withdrawals."},{"text":"Liquidity means holding enough profitable loans to finance expansion.","correct":false,"explanation":"Profitable loans usually tie funds up and may not be quickly recoverable, so they are less liquid. Liquidity concerns readily available funds for meeting withdrawals."}]},{"id":"17ea4fd4-ce8b-4632-8aa9-2578c61a4a1b","cardType":"basic","points":2,"front":"How does a commercial bank mainly earn profit?","back":"Profitability mainly comes from lending at higher rates than the rates paid to depositors.","mcqOptions":[{"text":"Profitability mainly comes from lending at higher rates than the rates paid to depositors.","correct":true,"explanation":"Banks earn interest on loans and pay interest on deposits. The difference between the higher lending rate and the lower deposit rate is a major source of banking profit."},{"text":"Profitability mainly comes from lending at lower rates than the rates paid to depositors.","correct":false,"explanation":"Lending below the rate paid to depositors would create a negative interest margin, reducing profitability. Banks mainly profit when lending rates exceed the rates paid to depositors."},{"text":"Profitability mainly comes from holding higher reserves than the rates paid to depositors.","correct":false,"explanation":"Reserves support liquidity but generally earn little, so they are not the main source of profit. Profit mainly comes from the margin between lending and deposit rates."},{"text":"Profitability mainly comes from charging identical rates to borrowers and depositors.","correct":false,"explanation":"Identical borrowing and deposit rates leave no interest margin to generate profit, before costs are considered. Banks mainly profit by lending at higher rates than they pay depositors."}]},{"id":"a1ba3c65-d90d-45b3-b260-8e81ded65397","cardType":"basic","points":1,"front":"What does security mean as a bank objective?","back":"Security means keeping assets safe by limiting risky lending.","mcqOptions":[{"text":"Security means keeping assets safe by limiting risky lending.","correct":true,"explanation":"Security involves protecting the bank’s assets and solvency. Limiting risky lending reduces the chance that borrowers default and cause significant losses to the bank."},{"text":"Security means keeping assets safe by increasing risky lending.","correct":false,"explanation":"Increasing risky lending raises the likelihood of defaults and losses, which undermines asset safety. Security is promoted by limiting risky lending and managing credit risk."},{"text":"Security means keeping assets safe by reducing all customer deposits.","correct":false,"explanation":"Reducing customer deposits would shrink an important source of bank funding but would not directly make assets safer. Security is achieved by limiting risky lending."},{"text":"Security means keeping assets safe by holding no liquid funds.","correct":false,"explanation":"Holding no liquid funds would make it harder to meet withdrawals and could undermine confidence. Security involves limiting risky lending while maintaining sufficient liquidity."}]},{"id":"ae9112d0-e7ff-4c0c-9461-ec22b2fe3a0d","cardType":"basic","points":2,"front":"Why do liquidity and profitability conflict?","back":"Liquid assets are safe but earn little, whereas profitable loans are less liquid and riskier.","mcqOptions":[{"text":"Liquid assets are safe but earn little, whereas profitable loans are less liquid and riskier.","correct":true,"explanation":"Reserves and other liquid assets can meet withdrawals but normally provide low returns. Loans can generate more interest income, yet they are harder to convert quickly and carry default risk."},{"text":"Liquid assets are risky but earn much, whereas profitable loans are more liquid and safer.","correct":false,"explanation":"This reverses the usual trade-off. Liquid assets are generally safer and lower-yielding, while profitable loans tend to be less liquid and carry greater risk."},{"text":"Liquid assets are safe and earn much, whereas profitable loans are equally liquid and safer.","correct":false,"explanation":"Liquid assets generally earn less, and loans are not equally liquid or safer because borrowers may default. The conflict arises from liquid safety versus loan returns and risk."},{"text":"Liquid assets are unavailable but earn little, whereas profitable loans are more liquid and riskier.","correct":false,"explanation":"Liquid assets are readily available, not unavailable, and loans are generally less liquid. Their higher returns reflect greater illiquidity and lending risk."}]},{"id":"b0a538d8-2964-4a27-af97-dfabad18db3b","cardType":"basic","points":1,"front":"What are the main items on a commercial bank's balance sheet?","back":"

Assets: reserves, loans and other holdings
Liabilities: customer deposits owed

","mcqOptions":[{"text":"

Assets: reserves, loans and other holdings
Liabilities: customer deposits owed

","correct":true,"explanation":"A commercial bank’s assets include reserves, loans, and other holdings. Customer deposits appear as liabilities because the bank owes those funds to its customers."},{"text":"

Assets: customer deposits owed
Liabilities: reserves, loans and other holdings

","correct":false,"explanation":"This reverses the balance-sheet classification. Reserves, loans, and other holdings are assets, while customer deposits are liabilities owed by the bank."},{"text":"

Assets: taxes and wages paid
Liabilities: customer shares owned

","correct":false,"explanation":"Taxes and wages are expenses rather than the main asset category, and customer shares are not the standard liability described here. The key items are bank assets and deposits owed."},{"text":"

Assets: customer withdrawals made
Liabilities: cash profits earned

","correct":false,"explanation":"Withdrawals and profits are transactions or income flows, not the main balance-sheet categories in this description. Assets are reserves, loans, and holdings; deposits are liabilities."}]},{"id":"ed4b293e-c80d-4e90-bc2b-662265af60d6","cardType":"basic","points":1,"front":"What is a bank's reserve ratio?","back":"The reserve ratio is the share of deposits held as reserves.","mcqOptions":[{"text":"The reserve ratio is the share of deposits held as reserves.","correct":true,"explanation":"The reserve ratio measures the proportion of customer deposits retained as reserves rather than lent out. A higher ratio improves the bank’s ability to meet withdrawals."},{"text":"The reserve ratio is the share of loans held as deposits.","correct":false,"explanation":"The ratio is based on deposits and measures the part held as reserves, not the share of loans held as deposits. Confusing the numerator and denominator gives the wrong definition."},{"text":"The reserve ratio is the share of profits held as reserves.","correct":false,"explanation":"Reserves are related to deposits and liquidity, not specifically to retained profits. The reserve ratio is the share of deposits held as reserves."},{"text":"The reserve ratio is the share of reserves lent to customers.","correct":false,"explanation":"Reserves are funds retained to support withdrawals, not the amount lent to customers. The reserve ratio measures reserves as a share of total deposits."}]},{"id":"8dae2f05-9a8b-4145-bb76-e37a0f1164e2","cardType":"basic","points":1,"front":"What does the capital ratio measure?","back":"The capital ratio measures the buffer that absorbs losses.","mcqOptions":[{"text":"The capital ratio measures the buffer that absorbs losses.","correct":true,"explanation":"The capital ratio indicates how much bank capital is available relative to risk-weighted assets. This capital acts as a buffer, absorbing losses before depositors are affected."},{"text":"The capital ratio measures the share of deposits available for withdrawals.","correct":false,"explanation":"The share of deposits available for withdrawals relates to the reserve ratio and liquidity. The capital ratio measures the loss-absorbing capital buffer."},{"text":"The capital ratio measures the return earned on customer loans.","correct":false,"explanation":"The return on customer loans contributes to profitability but does not define the capital ratio. The capital ratio measures capital available to absorb losses."},{"text":"The capital ratio measures the value of payments made daily.","correct":false,"explanation":"Daily payment value describes transaction activity, not a bank’s financial resilience. The capital ratio measures the capital buffer that can absorb losses."}]},{"id":"48b32a1c-b080-4bb5-a090-964c0a7b1958","cardType":"basic","points":2,"front":"What is the effect of holding more reserves on a bank?","back":"Holding more reserves raises liquidity but lowers profit because reserves earn little.","mcqOptions":[{"text":"Holding more reserves raises liquidity but lowers profit because reserves earn little.","correct":true,"explanation":"More reserves provide funds that can meet withdrawals, improving liquidity. However, reserves usually earn less than loans, so shifting funds into reserves reduces potential interest profit."},{"text":"Holding more reserves raises profitability but lowers liquidity because reserves earn little.","correct":false,"explanation":"Reserves normally improve liquidity because they are readily available. They tend to lower potential profitability because they earn little compared with loans."},{"text":"Holding more reserves raises security but increases profit because reserves earn much.","correct":false,"explanation":"Reserves may improve security and liquidity, but they generally earn little rather than much. Holding more reserves usually reduces the income available from lending."},{"text":"Holding more reserves lowers liquidity but raises profit because reserves earn little.","correct":false,"explanation":"This reverses both effects. Reserves are readily available, so they raise liquidity, while their low returns mean they usually reduce profit compared with lending."}]},{"id":"d5515b1f-9256-4d19-bb18-7500f8d2bc87","cardType":"basic","points":2,"front":"Why can increased lending reduce a bank's security?","back":"Lending more can raise profit but reduces liquidity and security.","mcqOptions":[{"text":"Lending more can raise profit but reduces liquidity and security.","correct":true,"explanation":"Additional lending can increase interest income, but funds become less readily available for withdrawals and borrowers may default. This creates pressure on both liquidity and security."},{"text":"Lending more can raise liquidity but reduces profit and security.","correct":false,"explanation":"Loans are generally less liquid because funds are committed to borrowers. Lending more may increase profit, but it can reduce liquidity and security through default risk."},{"text":"Lending more can raise security but reduces profit and liquidity.","correct":false,"explanation":"More lending does not normally improve security because it increases exposure to borrower default. It may raise profit while reducing liquidity and security."},{"text":"Lending more can raise profit but increases liquidity and security.","correct":false,"explanation":"Although lending may raise profit, it ties up funds and increases credit exposure. Therefore, it can reduce liquidity and security rather than increase both."}]},{"id":"00b03d60-299e-4286-9967-cc9d1f77462c","cardType":"basic","points":1,"front":"What is credit creation?","back":"Credit creation is the process by which bank lending creates new deposits and expands the money supply.","mcqOptions":[{"text":"Credit creation is the process by which bank lending creates new deposits and expands the money supply.","correct":true,"explanation":"When a bank makes a loan, it commonly credits the borrower’s account with a new deposit. Spending and redepositing this money can expand deposits and the money supply."},{"text":"Credit creation is the process by which bank lending destroys existing deposits and contracts the money supply.","correct":false,"explanation":"This describes contraction rather than credit creation. Bank lending normally creates new deposits, which can expand the money supply through subsequent spending and redepositing."},{"text":"Credit creation is the process by which bank lending creates new taxes and expands government revenue.","correct":false,"explanation":"Bank lending does not directly create tax revenue. Credit creation refers to new bank deposits generated by lending and the resulting expansion of the money supply."},{"text":"Credit creation is the process by which bank lending creates new reserves and fixes the money supply.","correct":false,"explanation":"Loans create deposits rather than simply fixing the money supply. Reserves and deposits are different balance-sheet items, and credit creation expands the money supply."}]},{"id":"a2e52b7f-8c1b-499a-ba9a-373af73bf6c0","cardType":"basic","points":2,"front":"How does an initial deposit create a larger stock of deposits?","back":"The money lent is spent and re-deposited elsewhere, allowing further lending.","mcqOptions":[{"text":"The money lent is spent and re-deposited elsewhere, allowing further lending.","correct":true,"explanation":"A loan recipient spends the funds, and the recipient of that spending may deposit them in another bank. The new deposit supports another loan, creating a larger deposit stock."},{"text":"The money lent is saved and destroyed immediately, preventing further lending.","correct":false,"explanation":"Spending does not destroy the money immediately; it transfers the deposit to another person or bank. Re-depositing allows further lending and expands total deposits."},{"text":"The money lent is spent and withdrawn permanently, allowing further lending.","correct":false,"explanation":"A permanent withdrawal would remove funds from the banking system rather than support further lending. The multiplier process depends on money being re-deposited elsewhere."},{"text":"The money lent is retained and replaced by reserves, preventing further lending.","correct":false,"explanation":"The loan is typically spent, and the resulting payment can become a deposit elsewhere. Re-deposits support further lending; they are not simply replaced by reserves."}]},{"id":"585b67c9-88ed-45a4-80ac-dfbf98add683","cardType":"basic","points":1,"front":"What is the formula for the credit multiplier?","back":"Credit multiplier = $\\dfrac{1}{\\text{reserve ratio}}$.","mcqOptions":[{"text":"Credit multiplier = $\\dfrac{1}{\\text{reserve ratio}}$.","correct":true,"explanation":"The simple credit multiplier is the reciprocal of the reserve ratio. A lower reserve ratio permits a larger multiple expansion of deposits, assuming the other model assumptions hold."},{"text":"Credit multiplier = $\\dfrac{1}{\\text{capital ratio}}$.","correct":false,"explanation":"The simple multiplier uses the reserve ratio, which determines the fraction of deposits retained. The capital ratio measures loss-absorbing capital and is not the multiplier denominator."},{"text":"Credit multiplier = $\\text{reserve ratio}$.","correct":false,"explanation":"Using the reserve ratio itself reverses the relationship. The credit multiplier is its reciprocal, so a smaller reserve ratio produces a larger potential multiplier."},{"text":"Credit multiplier = $\\dfrac{1}{\\text{interest rate}}$.","correct":false,"explanation":"The interest rate affects borrowing incentives and loan profitability, but it is not the denominator in the simple credit multiplier. The formula uses the reserve ratio."}]},{"id":"8aaf75c3-6b18-4a0b-ba83-b90fc521a92e","cardType":"basic","points":2,"front":"What happens to the credit multiplier when the reserve ratio falls?","back":"A smaller reserve ratio produces a larger credit multiplier.","mcqOptions":[{"text":"A smaller reserve ratio produces a larger credit multiplier.","correct":true,"explanation":"The credit multiplier is the reciprocal of the reserve ratio, so reducing the ratio allows each initial deposit to support more lending and deposits."},{"text":"A smaller reserve ratio produces a smaller credit multiplier.","correct":false,"explanation":"This reverses the relationship. Because the multiplier is 1 divided by the reserve ratio, a smaller ratio produces a larger credit multiplier."},{"text":"A smaller reserve ratio produces an unchanged credit multiplier.","correct":false,"explanation":"The multiplier depends directly on the reserve ratio, so changing the ratio changes the multiplier rather than leaving it unchanged."},{"text":"A smaller reserve ratio produces a negative credit multiplier.","correct":false,"explanation":"A positive reserve ratio produces a positive multiplier. Lowering it increases the multiplier; it does not make the multiplier negative."}]},{"id":"79354955-328d-4ce0-a5ea-a0387fc65cee","cardType":"basic","points":2,"front":"What total deposits can a £1,000 initial deposit support with a 10% reserve ratio?","back":"With a 10% reserve ratio, the multiplier is $\\dfrac{1}{0.1}=10$ and a £1,000 deposit supports up to £10,000 of deposits.","mcqOptions":[{"text":"With a 10% reserve ratio, the multiplier is $\\dfrac{1}{0.1}=10$ and a £1,000 deposit supports up to £10,000 of deposits.","correct":true,"explanation":"The multiplier is 1 divided by 0.1, giving 10. Multiplying the initial £1,000 deposit by 10 gives a maximum of £10,000 in total deposits."},{"text":"With a 10% reserve ratio, the multiplier is $\\dfrac{1}{0.1}=10$ and a £1,000 deposit supports up to £1,000 of deposits.","correct":false,"explanation":"This forgets to apply the multiplier to the initial deposit. A multiplier of 10 means £1,000 can support up to £10,000 of total deposits."},{"text":"With a 10% reserve ratio, the multiplier is $\\dfrac{1}{0.1}=10$ and a £1,000 deposit supports up to £100,000 of deposits.","correct":false,"explanation":"This multiplies the initial deposit by 100 instead of 10, as though the reserve ratio were 1%. The correct maximum is £10,000."},{"text":"With a 10% reserve ratio, the multiplier is $\\dfrac{1}{0.1}=10$ and a £1,000 deposit supports up to £9,000 of deposits.","correct":false,"explanation":"£9,000 is the additional deposit creation after subtracting the initial £1,000, not the total deposits. The total is £1,000 multiplied by 10, or £10,000."}]},{"id":"7a2b6f98-95f5-4814-9c63-6f52364ab5ee","cardType":"basic","points":2,"front":"Why can one bank not lend a multiple of its deposits?","back":"The multiple arises across the whole banking system, as lending passes between banks.","mcqOptions":[{"text":"The multiple arises across the whole banking system, as lending passes between banks.","correct":true,"explanation":"One bank can lend only according to its deposits and reserve requirements. The multiplied expansion occurs as deposited funds are repeatedly lent across the banking system."},{"text":"The multiple arises within the single lending bank, as it creates repeated loans from one deposit.","correct":false,"explanation":"A single bank cannot repeatedly relend the same funds while maintaining its required reserves. The multiple arises as funds move between different banks."},{"text":"The multiple arises across the central bank alone, as it directly converts reserves into household deposits.","correct":false,"explanation":"The central bank supplies reserves and influences conditions, but commercial banks create deposits through lending. The overall multiple depends on transactions across the banking system."},{"text":"The multiple arises within the borrowing household, as it spends the same loan several times.","correct":false,"explanation":"A borrower cannot create multiple deposits by spending the same money repeatedly. Deposit expansion occurs when lending and redepositing pass through the banking system."}]},{"id":"3b2ab77d-28fc-4397-aae0-03bfa14bfb5a","cardType":"basic","points":2,"front":"Why might actual credit creation be below the theoretical maximum?","back":"The full multiplier is a maximum, not a guarantee, because loan demand and banks' willingness to lend may be limited.","mcqOptions":[{"text":"The full multiplier is a maximum, not a guarantee, because loan demand and banks' willingness to lend may be limited.","correct":true,"explanation":"The theoretical multiplier assumes all available lending is taken up and redeposited. Weak loan demand or cautious banks can make actual credit creation lower."},{"text":"The full multiplier is a guarantee, not a maximum, because all available reserves must become new loans.","correct":false,"explanation":"The multiplier is only a theoretical maximum. Banks may choose not to lend and customers may not demand loans, so actual credit creation can be lower."},{"text":"The full multiplier is a minimum, not a maximum, because banks can always create unlimited deposits.","correct":false,"explanation":"The reserve ratio constrains the theoretical expansion of deposits. Banks cannot create unlimited credit, and the calculated multiplier represents a maximum under ideal assumptions."},{"text":"The full multiplier is a maximum, not a guarantee, because reserve requirements automatically destroy loan demand.","correct":false,"explanation":"Reserve requirements limit potential lending but do not automatically remove demand for loans. Actual credit creation is below the maximum when demand or banks' willingness is limited."}]},{"id":"3734aa4d-e305-42e3-8ef7-3ae0c6db53cd","cardType":"cloze","points":null,"front":"A commercial bank's three objectives are [ ], profitability and security.","back":"A commercial bank's three objectives are liquidity, profitability and security.","mcqOptions":[{"text":"liquidity","correct":true,"explanation":"Liquidity is the ability to meet withdrawals and other short-term obligations. It is one of a commercial bank's three objectives alongside profitability and security."},{"text":"solvency","correct":false,"explanation":"Solvency concerns whether assets exceed liabilities over the longer term, but it is not the named objective in this three-part list. The correct term is liquidity."},{"text":"expansion","correct":false,"explanation":"Expansion may be a business aim, but it is not one of the three objectives identified here. The relevant objective is liquidity, alongside profitability and security."},{"text":"consumption","correct":false,"explanation":"Consumption describes spending by households or firms, not a commercial bank's objective. The missing objective is liquidity, referring to meeting short-term payment demands."}]},{"id":"c92545fb-faa5-41c5-bcc0-6a8293c87769","cardType":"cloze","points":null,"front":"A reserve ratio of 10% gives a credit multiplier of $\\text{[...]}$.","back":"A reserve ratio of 10% gives a credit multiplier of $\\boxed{\\dfrac{1}{0.1}=10}$.","mcqOptions":[{"text":"$$\\dfrac{1}{0.1}=10$","correct":true,"explanation":"The credit multiplier is the reciprocal of the reserve ratio. With a 10% ratio written as 0.1, 1 divided by 0.1 equals 10."},{"text":"$$\\dfrac{1}{0.1}=5$","correct":false,"explanation":"This gives the multiplier associated with a 20% reserve ratio, not 10%. For a 10% ratio, the reciprocal is 10."},{"text":"$$\\dfrac{1}{0.1}=1$","correct":false,"explanation":"This treats the reserve ratio as though it had no effect on the multiplier. Dividing 1 by 0.1 gives 10, not 1."},{"text":"$$\\dfrac{1}{0.1}=100$","correct":false,"explanation":"This effectively treats 10% as 0.01 rather than 0.1, creating a factor-of-ten error. The correct reciprocal of 0.1 is 10."}]},{"id":"a8071850-1970-4608-a2c5-5b1c1c8960da","cardType":"cloze","points":null,"front":"With a 20% reserve ratio, the credit multiplier is $\\text{[...]}$.","back":"With a 20% reserve ratio, the credit multiplier is $\\boxed{\\dfrac{1}{0.2}=5}$.","mcqOptions":[{"text":"$$\\dfrac{1}{0.2}=5$","correct":true,"explanation":"A 20% reserve ratio is 0.2 in decimal form. Taking its reciprocal, 1 divided by 0.2, gives a credit multiplier of 5."},{"text":"$$\\dfrac{1}{0.2}=2$","correct":false,"explanation":"This is a common rounding or division error. The reciprocal of 0.2 is 5, because 0.2 multiplied by 5 equals 1."},{"text":"$$\\dfrac{1}{0.2}=10$","correct":false,"explanation":"This uses the multiplier for a 10% reserve ratio, confusing 20% with 10%. With 20%, the reciprocal calculation gives 5."},{"text":"$$\\dfrac{1}{0.2}=20$","correct":false,"explanation":"This uses the percentage number itself instead of taking the reciprocal of its decimal form. Writing 20% as 0.2 gives a multiplier of 5."}]},{"id":"7131dd01-71ed-4a8c-9a83-3edacc83dc4f","cardType":"cloze","points":null,"front":"A £1,000 initial deposit at a 10% reserve ratio supports total deposits of [ ].","back":"A £1,000 initial deposit at a 10% reserve ratio supports total deposits of £10,000.","mcqOptions":[{"text":"£10,000","correct":true,"explanation":"A 10% reserve ratio gives a multiplier of 10. Multiplying the £1,000 initial deposit by 10 produces total deposits of £10,000."},{"text":"£1,000","correct":false,"explanation":"This reports only the initial deposit and ignores the credit multiplier. With a multiplier of 10, the maximum total deposits reach £10,000."},{"text":"£9,000","correct":false,"explanation":"£9,000 represents the additional deposits created beyond the initial £1,000, not the total. Adding the initial deposit gives £10,000."},{"text":"£100,000","correct":false,"explanation":"This applies a multiplier of 100, which would correspond to a 1% reserve ratio. A 10% ratio gives a multiplier of 10 and total deposits of £10,000."}]},{"id":"1482c965-0aae-4dc7-9acd-443d772e8b17","cardType":"cloze","points":null,"front":"A higher reserve requirement causes the credit multiplier to [ ].","back":"A higher reserve requirement causes the credit multiplier to fall.","mcqOptions":[{"text":"fall","correct":true,"explanation":"The credit multiplier is the reciprocal of the reserve requirement. Increasing the requirement reduces the reciprocal, so the multiplier falls."},{"text":"rise","correct":false,"explanation":"This reverses the inverse relationship. A higher reserve requirement leaves less available for repeated lending, so the credit multiplier falls."},{"text":"remain constant","correct":false,"explanation":"The multiplier changes when the reserve requirement changes because it is calculated as 1 divided by that requirement. A higher requirement makes it fall."},{"text":"become negative","correct":false,"explanation":"Reserve requirements are positive percentages, so their reciprocal is positive. Increasing the requirement reduces the positive multiplier; it does not make it negative."}]}]}],"examCountdown":{"examDate":"2027-05-10","paperLabel":"Paper 1"},"heading":"2.4.2 Commercial banks and investment banks","title":"2.4.2 Commercial banks and investment banks Flashcards","topbar":{"backHref":"/a-level/economics/aqa/flashcards"},"topicSidebar":"$L38"}]}],"topicId":"f62d0931-0c31-5b32-a0ad-80a356ee8dd3","walled":"$L39"}],"$L3a","$L3b"]