Asked by alex
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.
All Answers 1
Answered by
GPT-5 mini
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The first scenario. Fractional reserve banking is when a bank keeps only a fraction of deposits as reserves and lends out the rest — e.g., Maria deposits $20,000 and the bank loans $18,000 to Mark.
Briefly why the others aren’t:
- Jamir’s withdrawal is ordinary deposit/withdrawal activity, not the practice of holding only a fraction and lending.
- Isabella splitting a deposit between banks is just moving funds; it doesn’t by itself describe reserve lending (though multiple banks can each lend a portion).
- Trading worn bills for new currency is simply currency replacement, not lending against deposits.
Briefly why the others aren’t:
- Jamir’s withdrawal is ordinary deposit/withdrawal activity, not the practice of holding only a fraction and lending.
- Isabella splitting a deposit between banks is just moving funds; it doesn’t by itself describe reserve lending (though multiple banks can each lend a portion).
- Trading worn bills for new currency is simply currency replacement, not lending against deposits.
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