In the absence of a reserve requirement, banks can create essentially infinite amounts of money.

Question

Quizplus · Accepted Answer

Without a reserve requirement, banks can loan out amounts greater than the deposits they have on hand, effectively creating new money as they do so. This process is called fractional reserve banking. As long as the bank keeps enough money in reserve to cover the withdrawals of customers, they can continue to create and lend out new money.

In the Absence of a Reserve Requirement, Banks Can Create