What is most likely to happen under a fractional reserve banking system?
A) Banks hold more reserves than deposits.
B) Banks generally lend out a majority of the funds deposited.
C) Banks cause the money supply to fall by lending out reserves.
D) Banks only accept savings deposits.

Question

Quizplus · Accepted Answer

Under a fractional reserve banking system, banks are required to hold only a fraction of the deposits as reserves and can lend out the rest. Therefore, it is most likely that banks will lend out a majority of the funds deposited to earn interest income.

What Is Most Likely to Happen Under a Fractional Reserve