What is one significant characteristic of fractional reserve banking?
A)Banks are not subject to "panics" or "runs."
B)Banks use deposit insurance for loans to customers.
C)Bank loans will be equal to the amount of gold on deposit.
D)Banks can create money through lending their reserves.

Question

Quizplus · Accepted Answer

One significant characteristic of fractional reserve banking is that banks can create money through lending their reserves. This means that banks only need to hold a fraction of the total deposits they receive as reserves, and can lend out the rest. When banks make loans, they create new money in the form of deposits. This process of money creation is central to the functioning of modern economies.

What Is One Significant Characteristic of Fractional Reserve Banking