Assertion (A): Banks can lend most of their deposits instead of keeping all of them as cash.
Reason (R): On a normal day, only a small share of depositors want to withdraw their money.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Withdrawals on any day are a small fraction of deposits, and new deposits keep coming in.
So banks keep a fraction as reserves and lend the rest. R explains A.

Concept: Fractional reserves
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsWhat commercial banks do

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Ten questions from Money Creation by Banks, at your own pace.

Assertion (A): Banks can lend most of their deposits instead of keeping all of them as cash.Reason (R): On a normal day, only a small share of depositors want to withdraw their money.

Explanation

Assertion (A): Banks can lend most of their deposits instead of keeping all of them as cash.
Reason (R): On a normal day, only a small share of depositors want to withdraw their money.