Banks are able to create money only when
A)interest rates are above 2%.
B)the Fed sells U.S.government bonds.
C)the reserve ratio is 100%.
D)only a fraction of deposits are held in reserve.

Question

Quizplus · Accepted Answer

Banks are able to create money when only a fraction of deposits are held in reserve. This is known as fractional reserve banking. When banks receive deposits from customers, they are required to keep only a fraction of those deposits as reserves to meet withdrawal demands. The rest of the money can be used to make loans or purchases, effectively creating new money.

Banks Are Able to Create Money Only When