Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
$100
B
$500
C
$1,000
D
$10
Understanding the Answer
Let's break down why this is correct
Answer
In a fractional reserve banking system, banks are required to keep a certain percentage of deposits as reserves. If the reserve requirement is 10%, and the bank receives a deposit of $1,000, it must hold 10% of that amount in reserve. To find out how much that is, you calculate 10% of $1,000, which equals $100. This means the bank will keep $100 in reserve and can lend out the remaining $900 to other customers. This system allows banks to support more loans and stimulate the economy while still keeping enough cash on hand for withdrawals.
Detailed Explanation
The bank must keep 10% of the deposit as reserves. Other options are incorrect because This answer suggests the bank keeps half of the deposit; This answer means the bank would keep all the money.
Key Concepts
Fractional reserve banking
Topic
Commercial Banks and Reserve Requirements
Difficulty
easy level question
Cognitive Level
understand
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