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.
E) the banking system would realize the money multiplier.

Question

Quizplus · Accepted Answer

The fractional reserve system allows banks to create money by lending out more than their actual reserves. Without this system, banks would only be able to lend out what they already have in deposits, and would not be able to create additional money through loans.

If the Fractional Reserve System Did Not Exist