Explain how fractional reserve banking creates money out of thin air and the potential consequences to the economy if banks over-extend themselves.. Do you think that banks should have a reserve requirement to promote stability or are you comfortable with the Federal Reserve eliminating the reserve requirement in 2020 and relying more on interest on reserves to maintain an appropriate cushion in the economy?

Answer rating: 100% (QA)

Answer Fractional reserve banking is a system where banks are required to hold only a fraction of their customers deposits as reserves while the remai... View the full answer