3. Why would corporations want to achieve zero balances in their checking accounts?

a) to earn more interest b) to avoid paying taxes

c) to keep a low profile d) to circumvent banking regulations

4. How do the banks gain from this corporate behavior?

a) more loans can be made b) tax-free profits can be made

c) interest rates can be increased d) by circumventing banking regulations

"In the process, the money multiplies, since the banks are allowed to lend more money than they actually have, within limits set by the Federal Reserve Board. The board tries to anticipate how much the money will multiply as this process unfolds. If its calculations are right, just enough money will be created to accommodate the growth it desires for the economy. If the calculations are wrong, it would make them right by pumping some money into the economy or pumping some out."

5. What money is being multiplied here?

a) the money you and I hold as cash b) the money the government receives in taxes

c) the money obtained by the Fed when it sold bonds

d) the money spent by the Fed when it bought bonds