The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system
A) has been able to reduce the vulnerability of banks to "runs" or "panics."
B) can increase its demand deposits by a multiple of its excess reserves.
C) cannot increase its demand deposits by a multiple of its excess reserves.
D) has been based on the fractional reserve system of banking.

Question

Quizplus · Accepted Answer

The banking system can lend out a portion of deposits, which then get deposited in other banks, effectively allowing the system as a whole to increase its demand deposits by a multiple of its excess reserves. This process is known as the money multiplier effect in fractional reserve banking.

The Fact That Reserves Lost by Any Particular Bank Will