Asked by Grace Davis on Jun 03, 2024
Verified
Fractional reserve banking occurs when:
A) a bank has reserves that exceed its deposits.
B) a bank has reserves that are equal to its deposits.
C) a bank has reserves that are less than its deposits.
D) some depositors lose their deposits through poor bank management.
E) some lenders fail to repay their loans.
Fractional Reserve Banking
A financial system where just a small portion of the deposits at a bank is supported by real cash present and accessible for withdrawal.
- Describe the principle of fractional reserve banking and its influence on the financial system.
Verified Answer
ZK
Zybrea KnightJun 05, 2024
Final Answer :
C
Explanation :
Fractional reserve banking occurs when a bank has reserves that are less than its deposits. This means that the bank is only required to keep a fraction, or a portion, of the deposits as reserves and can lend out the rest of the money to borrowers. This creates the potential for multiple claims on the same money, which can lead to a bank run if depositors lose confidence in the bank's ability to repay their deposits.
Learning Objectives
- Describe the principle of fractional reserve banking and its influence on the financial system.
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