Which of the following happens in a 100-percent-reserve banking system?
A)Banks can create money by issuing currency.
B)Banks can create money by lending out reserves.
C)Banks can lend money to their customers.
D)Banks hold as many reserves as they hold deposits.

Question

Quizplus · Accepted Answer

In a 100-percent-reserve banking system, banks are required to hold as many reserves as they hold deposits, which means they cannot create money by lending out reserves. Instead, they can only lend money that has been deposited with them by their customers. This type of system would limit the potential for banks to create money through lending and would likely result in a more stable financial system.

Which of the Following Happens in a 100-Percent-Reserve Banking System