If banks were required to keep 100% of deposits in reserves, they could
A) make more loans.
B) make no loans.
C) create more deposits.
D) only use required reserves for loans.

Question

Quizplus · Accepted Answer

If banks were required to keep 100% of deposits in reserves, they would not have any funds available to lend out, so they would make no loans. Additionally, they would not be able to create deposits because this process relies on the ability to lend out a portion of deposits, thus increasing the money supply. The banks would only be able to use required reserves for purposes such as clearing checks and other transactions.

If Banks Were Required to Keep 100% of Deposits in Reserves