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Chapter 14: Q.26 (page 353)

Should banks have to hold 100% of their deposits? Why or why not?

Short Answer

Expert verified

The holding of100% of deposits by the banks is not allowed anywhere.

Step by step solution

01

:Concept Introduction

The quantum of plutocrat the banking system creates through the plutocrat multiplier is the quantum of reserves the bank holds. Banks don't hold100%of their deposits.

02

:Explanation of Solution

The reason behind banks not holding its 100%of their deposits is to make a profit by using these deposits to lend loans that earn interest, instead of holding money as a deposit that earns nothing. Due to this reason, the holding of 100%of deposits by the banks is not allowed anywhere

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