The chartered banking system can lend by a multiple of its excess reserves primarily because:
A)its reserves are on deposit with the Bank of Canada
B)its reserves are highly liquid assets.
C)it loses reserves when it extends credit.
D)its reserves are fractional.

Question

Quizplus · Accepted Answer

The chartered banking system's reserves are fractional, meaning they only hold a fraction of the total deposits they have. This allows them to lend out more than what they have in reserve. As long as they maintain a certain level of reserves, they are able to lend out based on a multiple of their excess reserves.

The Chartered Banking System Can Lend by a Multiple of Its