Which of the following is true about banks in a fractional reserve banking system?

Question

Quizplus · Accepted Answer

In a fractional reserve banking system, banks are only required to keep a fraction of their deposits as reserves, which means they can lend out the remaining amount. This creates the potential for banks to create additional money as loans are made, increasing the money supply. Therefore, option A is correct. Option B is not correct, as banks are required to keep a certain level of reserves. Option C is not correct, as there is no requirement for banks to purchase gold. Option D is not correct, as banks can keep cash on hand or in their own vaults. Option E is also not correct, as banks have the option to deposit cash with the Federal Reserve or keep it in their own vaults.

Which of the Following Is True About Banks in a Fractional