Responses
Fractional-reserve banks are permitted to print currency, increasing the number of physical dollars in circulation.
Fractional-reserve banks are permitted to print currency, increasing the number of physical dollars in circulation.
Fractional-reserve banks borrow and store funds from lenders, decreasing the number of physical dollars in circulation.
Fractional-reserve banks borrow and store funds from lenders, decreasing the number of physical dollars in circulation.
Fractional-reserve banks store the entirety of every depositor's funds, limiting the amount of currency in circulation.
Fractional-reserve banks store the entirety of every depositor's funds, limiting the amount of currency in circulation.
Fractional-reserve banks issue depositor funds to borrowers, increasing the number of claims made on the same dollars.
1 answer
The correct response is:
Fractional-reserve banks issue depositor funds to borrowers, increasing the number of claims made on the same dollars.
Fractional-reserve banking allows banks to hold only a fraction of their deposits in reserve while lending out the rest. This process effectively increases the money supply because each dollar loaned out can be deposited again, leading to multiple claims on the same amount of physical currency.
