Fractional reserve banking refers to a system where banks
A) grant loans to their borrowing customers.
B) deposit a fraction of their reserves at the central bank.
C) hold only a fraction of their deposits in their reserves.
D) accept a portion of their deposits in checkable accounts.

Question

Quizplus · Accepted Answer

Fractional reserve banking refers to a system where banks hold only a fraction of their deposits in their reserves, and lend out the rest to borrowers. This means that banks create money by effectively issuing new deposits through their lending activities.

Fractional Reserve Banking Refers to a System Where Banks