In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:
A) increases by $100.
B) decreases by $100.
C) increases by more than $100.
D) remains the same.

Question

Quizplus · Accepted Answer

In a 100-percent-reserve banking system, the bank would be required to hold the entire $100 in reserves and cannot lend it out. Therefore, the money supply would remain the same as there is no increase or decrease in the amount of money in circulation.

In a 100-Percent-Reserve Banking System, If a Customer Deposits $100