If the fractional reserve system did not exist,
A) the banking system could not create money.
B) there would be no effect on the ability of the banking system to create money.
C) banks would loan out its required reserves.
D) banks would be highly susceptible to bank runs.

Question

Quizplus · Accepted Answer

The fractional reserve system is what allows banks to create money by loaning out more than their actual reserves. Without this system, banks would only be able to loan out what they have in reserves, and would not have the ability to create additional money through lending.

If the Fractional Reserve System Did Not Exist