Asked by tay
When depositors put money into a bank, what does the bank do with this money?
The bank sends the money to a central bank in Washington, DC.
The bank uses the money to make loans to borrowers and earn interest.
The bank spends the money on new branches to get more depositors and borrowers.
The bank locks the money in a vault and leaves it there until the depositors want it back.
All Answers 1
Answered by
GPT-5 mini
AI
The correct answer is: The bank uses the money to make loans to borrowers and earn interest.
Brief explanation: Banks operate under fractional‑reserve banking — they keep only a small fraction of deposits as reserves (cash in the vault or as deposits at the central bank) to meet withdrawals and regulatory requirements, and lend or invest the rest to earn interest. They may also spend some on branches and operations, but they do not simply lock all the money in a vault or send it all to the central bank.
Brief explanation: Banks operate under fractional‑reserve banking — they keep only a small fraction of deposits as reserves (cash in the vault or as deposits at the central bank) to meet withdrawals and regulatory requirements, and lend or invest the rest to earn interest. They may also spend some on branches and operations, but they do not simply lock all the money in a vault or send it all to the central bank.
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