If there were no fractional reserve banking, then:
A) the reserve ratio must be 0percent.
B) banks would not create money in the economy.
C) there would be a very small amount of lending using deposits.
D) banks would not be able to create as much money as they desired.

Question

Quizplus · Accepted Answer

Fractional reserve banking allows banks to create money by lending out a portion of the deposits they receive. Without it, banks would only be able to lend out money that they actually have on hand, which would limit the amount of lending and money creation possible in the economy. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect because they do not accurately reflect the consequences of no fractional reserve banking.

If There Were No Fractional Reserve Banking, Then