Because the banking system operates using fractional reserves,
A) the money multiplier is greater than one.
B) excess reserves are equal to zero.
C) required reserves are equal to 100 percent.
D) banks can loan out only their required reserves.

Question

Quizplus · Accepted Answer

The fractional reserve system allows banks to lend out a portion of their deposits, which creates more money in the economy than would be possible with a 100% reserve system. The money multiplier is the ratio of the amount of money created by banks to the amount of reserves they hold. Since banks can lend out a multiple of their reserves, the money multiplier is greater than one.

Because the Banking System Operates Using Fractional Reserves