1. Explain the Fractional reserve banking system as you understand it and according to the film. (2 paragraphs explaining-- and if you want to include a THIRD paragraph or your reaction/opinion that is welcome.)
Fractional Reserve Banking System
The fractional banking system is a system in which only a fraction of bank deposits are backed by actual cash and are able to be taken. The purpose is to expand the economy by freeing capital that can be loaned out to other groups of people. With this system the production of money is in a way that it's controlled and supervised way. This process functions by producing bonds created by the government and gave away to the federal bank; then transformed into money. It is important to remember that the 100% of the money is divided. Only 3% of the physical money is kept in the bank, and the other 97% is kept virtually. With this system money is in a safe position, because of the virtual security.
There are more divisions beyond the percentage assigned of physical money. The percentage that corresponds to the physical money is 3%, taking the 3% as a 100%, that 100% of the 3% is divided for many uses. With that percentage, banks can generate loans, and can make their transactions. The interesting part of loans is the tremendous amount of money received back because of the interests. Interests in the loans can produce many times more the principal amount of the loan. This calls my attention because this is an aspect where people can identify, where does money come from.
Works Cited:
"Fractional Reserve Banking." Investopedia. N.p., n.d. Web. 04 Apr. 2014.
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