?

Macroeconomics

Free Version

Upgrade subject to access all content

Easy

How does Fractional Reserve Banking Work?

MACRO-XRJFMD

Fractional reserve banking is situation where

A

banks hold only highly liquid and secure assets, such as Federal Reserve deposits or cash.

B

banks hold only loans made to private firms, households or other agents other than Federal Reserve deposits

C

banks hold only miscellaneous assets such as bonds, real property or foreign currencies.

D

banks hold both 1) highly liquid and secure assets, 2) loans made to private firms, households or other agents other than Federal Reserve deposits, and perhaps 3) small amounts of other miscellaneous assets such as bonds, real property or foreign currencies.