The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:
A) reserves lost by any particular bank will be gained by some other bank.
B) the central banks follow policies that prevent reserves from falling below the level required by law.
C) the MPC of borrowers is greater than zero but less than 1.
D) the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities.

Question

Quizplus · Accepted Answer

When one bank loses reserves, another bank gains them, allowing the banking system as a whole to expand checkable deposits by a multiple of the excess reserves.

The Basic Reason Why the Commercial Banking System Can Increase