Question

The fractional banking system _____.

A.ensures growth in the economy

B.makes banking more secure

C.prevents excessive defaults

D.only works if there are a limited number of banks

Answer 1

Answer : The fractional banking system ensures growth in the economy - A.

Answer 2

ensures growth in the economy

Step-by-step explanation:

The fractional banking system occurs in most capitalist countries, such as the US. Basically, this system allows banks to make loans and investments in excess of what is held by account holders' deposits. The Central Bank regulates this activity and requires only a portion of deposits to be held as collateral, giving banks the prerogative to lend the rest of the money to stimulate the economy through credit. Credit is an essential type of financing for economic development, so the fractional banking system stimulates the economy to function well.