In a 100-percent-reserve banking system, banks:
A) can increase the money supply.
B) can decrease the money supply.
C) can either increase or decrease the money supply.
D) cannot affect the money supply.

Question

Quizplus · Accepted Answer

In a 100-percent-reserve banking system, banks are required to hold 100% of their deposits as reserves and cannot lend out more than they have on hand. Therefore, they cannot create new money through lending and cannot affect the money supply.

In a 100-Percent-Reserve Banking System, Banks