What Happens in a 100-Percent-Reserve Banking System

question 10

Multiple Choice

What happens in a 100-percent-reserve banking system?

• A) Banks can create money by issuing currency.
• B) Banks can create money by lending out reserves.
• C) Banks can lend money to their customers.
• D) Banks hold as many reserves as they hold deposits.

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Definitions:

Interest Rate

The interest rate is the cost of borrowing money or the return earned from lending money, typically expressed as a percentage of the principal amount per year.

Payoff

The return or reward received from a particular action or investment, often analyzed in decision-making processes.

Insurance

A financial arrangement that provides protection against potential loss to life, health, or property in exchange for premium payments.

Population Growth

The increase in the number of individuals in a population, commonly expressed as an annual percentage.