In a fractional-reserve banking system,the reserve-deposit ratio is
A) equal to the currency in bank vaults.
B) equal to the currency held by the public divided by deposits.
C) equal to 100%.
D) less than 100%.
E) more than 100%.

Question

Quizplus · Accepted Answer

In a fractional-reserve banking system, the reserve-deposit ratio is less than 100%. This means that banks are only required to hold a fraction of deposits as reserves, and can lend out the rest of the money. For example, if the reserve-deposit ratio is 10%, this means that for every $100 deposited, the bank is required to hold $10 in reserves and can lend out $90.

In a Fractional-Reserve Banking System,the Reserve-Deposit Ratio Is