Question
Which of these scenarios best describes fractional reserve banking?
Maria makes a deposit of $20,000, and the bank loans $18,000 to Mark so he can buy a car
Jamir makes a $1,000 deposit and then withdraws it one week later.
Isabella splits her $5,000 deposit between two different banks.
A bank manager trades old, worn $20 bills for new currency issued by the Federal Reserve.
Maria makes a deposit of $20,000, and the bank loans $18,000 to Mark so he can buy a car
Jamir makes a $1,000 deposit and then withdraws it one week later.
Isabella splits her $5,000 deposit between two different banks.
A bank manager trades old, worn $20 bills for new currency issued by the Federal Reserve.
Answers
GPT-5 mini
The first scenario (Maria deposits $20,000 and the bank loans $18,000 to Mark) best describes fractional reserve banking.
Why: fractional reserve banking means a bank keeps only a fraction of deposits as reserves and lends out the remainder. In that example the bank holds $2,000 (10%) and lends $18,000, which is exactly the practice. The other options describe withdrawals, moving funds between banks, or swapping old bills for new currency — none of which illustrate the reserve-and-lend behavior that defines fractional reserve banking.
Why: fractional reserve banking means a bank keeps only a fraction of deposits as reserves and lends out the remainder. In that example the bank holds $2,000 (10%) and lends $18,000, which is exactly the practice. The other options describe withdrawals, moving funds between banks, or swapping old bills for new currency — none of which illustrate the reserve-and-lend behavior that defines fractional reserve banking.