How does fractional-reserve banking influence the money supply in the United States?(1 point)

Question

Responses

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 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 issue depositor funds to borrowers, increasing the number of claims made on the same dollars.

Answer 1

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 deposits as reserves while lending out the rest. This process increases the money supply in the economy as new loans create additional deposits, thus increasing the number of claims on the same amount of physical currency.