The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system:
A) Has been able to reduce the vulnerability of banks to "runs" or "panics"
B) Can increase its demand deposits by a multiple of its excess reserves
C) Cannot increase its demand deposits by a multiple of its excess reserves
D) Has been based on the fractional reserve system of banking

Question

Quizplus · Accepted Answer

The ability of the banking system to increase demand deposits by a multiple of its excess reserves is due to the money multiplier effect, where reserves lost by one bank are gained by another, allowing the system as a whole to expand credit.

The Fact That Reserves Lost by Any Particular Bank Will