Under a Fractional Reserve Banking System

question 11

Multiple Choice

Under a fractional reserve banking system,

• A)only a fraction of the banks in the system are allowed to create money
• B)only a fraction of the banks in the system have reserves
• C)the claims outstanding against the bank are only a fraction of the bank's total reserves
• D)each bank must deposit a fraction of its reserves with the Federal Reserve Bank
• E)bank reserves represent only a fraction of bank deposits

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Definitions:

Subsequent Agreement

An agreement made after a written agreement that alters or cancels the written agreement.

Verbal Agreement

An oral contract that is formed through spoken communication rather than in writing, though its legal enforceability varies by jurisdiction.

Guarantee

A collateral promise (in writing) to answer for the debt of another (the principal debtor) if the debtor should default in payment.

Demand for Payment

A formal request issued by a creditor to a debtor requiring payment of an outstanding debt by a specific date.