Which of the following reflects the concept of fractional reserves?

Question

Quizplus · Accepted Answer

The concept of fractional reserves is reflected by the fact that banks only need to keep a fraction of their deposits as reserves, and can lend out the rest. This allows the money supply to expand, as banks can create new money through lending. The money multiplier refers to the ratio of the amount of money created by the banking system to the amount of new reserves added to the system by the central bank. If the money multiplier is greater than 1, it means that banks are lending out more than their required reserves, reflecting the concept of fractional reserves. Excess reserves equal to 0 (B) would mean that banks are holding no additional reserves beyond what is required, but this alone does not necessarily indicate that banks are operating with fractional reserves. Required reserves equal to total reserves (C) would mean that banks are holding no excess reserves, but again, this does not necessarily reflect fractional reserves. Banks can lend only their required reserves (D) is a false statement, as banks can lend out more than their required reserves if they so choose.

Which of the Following Reflects the Concept of Fractional Reserves