Fractional reserve banking refers to a banking system in which

Question

Quizplus · Accepted Answer

Fractional reserve banking means that banks only hold a fraction of the funds deposited with them as reserves, while loaning out the rest to borrowers. This allows banks to earn interest on assets while also creating money through the process of lending. However, it also creates the possibility for financial instability if too many depositors try to withdraw their funds at once or if borrowers default on their loans. So, option B is the correct choice as it correctly describes the fractional reserve banking system.

Fractional Reserve Banking Refers to a Banking System in Which