If there were no fractional reserve banking:

Question

Quizplus · Accepted Answer

Fractional reserve banking allows banks to create money by lending out a portion of the deposits they hold. Without fractional reserve banking, banks would only be able to lend out the actual money they have on hand from deposits. Therefore, they would not be able to create new money in the economy. This means that choice B is the correct answer. The other choices are not accurate because a zero percent reserve ratio would indicate no reserves are being held, and that withdrawals could still occur even without fractional reserve banking (although banks may be more limited in the amount they can lend out).

If There Were No Fractional Reserve Banking