How Is It That the Banking System Is Able to Lend

question 121

Multiple Choice

How is it that the banking system is able to lend by a multiple of its excess reserves?

• A) Banks only have to hold a fraction of their deposits as reserves and can lend the rest to borrowers.
• B) Banks are required to hold only enough cash to meet the withdrawal needs of depositors.
• C) Loans can be made to borrowers.
• D) Required reserves have to be vault cash.
• E) Banks must hold their required reserves at the Federal Reserve.

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