Which of these scenarios best describes fractional reserve banking?Maria makes a deposit of $20,000, and the bank loans $18,000 to Mark so he can buy a carJamir makes a $1,000 deposit and then withdraws it one week later.Isabella splits her $5,000 deposit between two different banks.A bank manager trades old, worn $20 bills for new currency issued by the Federal Reserve.
Answer
A
Maria makes a deposit of $20,000, and the bank loans $18,000 to Mark so he can buy a car
B
Jamir makes a $1,000 deposit and then withdraws it one week later.
C
Isabella splits her $5,000 deposit between two different banks.
D
A bank manager trades old, worn $20 bills for new currency issued by the Federal Reserve.
Explanation
Fractional reserve banking means a bank keeps only part of its deposits in reserve and lends out the rest. In choice A, Maria deposits $20,000 and the bank lends $18,000 to Mark, so it retains $2,000 and uses the remaining funds for a loan. The other choices describe withdrawing money, dividing a deposit, or exchanging worn bills—not lending out deposits.
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