Responses
Fractional-reserve banks issue depositor funds to borrowers, increasing the number of claims made on the same dollars.
Fractional-reserve banks issue depositor funds to borrowers, increasing the number of claims made on the same dollars.
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 borrow and store funds from lenders, decreasing the number of physical dollars in circulation.
1 answer
The correct response is:
Fractional-reserve banks issue depositor funds to borrowers, increasing the number of claims made on the same dollars.
This describes how fractional-reserve banking works—banks keep a fraction of deposits in reserve and lend out the remainder, which effectively increases the money supply through the creation of credit.
