If the reserve-deposit ratio is less than 100%,then the banking system engages in
A) capital investment.
B) credit allocation.
C) the double coincidence of wants.
D) 100%-reserve banking.
E) fractional-reserve banking.

Question

Quizplus · Accepted Answer

If the reserve-deposit ratio is less than 100%, it means that the banking system engages in fractional-reserve banking, where banks hold only a fraction of their deposits as reserves and lend out the rest. This allows the banking system to create money through the process of credit allocation, where loans are made to borrowers who then deposit the money into their accounts, increasing the money supply. Capital investment and the double coincidence of wants are not related to the reserve-deposit ratio, and 100%-reserve banking is when banks hold 100% of their deposits as reserves, which is not the case in fractional-reserve banking.

If the Reserve-Deposit Ratio Is Less Than 100%,then the Banking