Fractional reserve banking is a system that allows:
A) banks to keep all their deposits on reserve as deposits at the central bank.
B) banks to create money.
C) banks to keep a very large percentage of their deposits on reserve as vault cash or as deposits at the central bank.
D) banks to keep all of their deposits on reserve as vault cash or as deposits at the central bank.

Question

Quizplus · Accepted Answer

Fractional reserve banking allows banks to create money by keeping only a fraction of their deposits on reserve as vault cash or deposits at the central bank, while lending out the rest. This is how the banking system is able to expand the money supply and provide credit to borrowers.

Fractional Reserve Banking Is a System That Allows