Fractional-reserve banking depends on the assumption that?

a. not all depositors will withdraw their deposits at the same time.


b. most banks will have assets that outweigh liabilities.


c. banks generally make more sound investments than poor investments.


d. at least a portion of our currency, though not all, is backed by gold.


e. the FDIC insures all banks loans up to $100,000|||Answer is A.





It is called fractional-reserve banking because they can lend out a fraction of the deposits made by their clients, thus having only a fraction of their clients' money in their vaults. So it is virtually insolvent from the get go. Because if people started demanding their money at the same time, these fractional banks will not be able to answer their obligations to their clients as they don't have all the money in their vaults.





I also agree with trevor h.|||It depends on the assumption that our central bankers and the federal reserve are smarter than the market and can actually anticipate risk. It relies on the assumption that the rest of the world will continue to invest in our economy and prop it up with their savings as we continue to consume like crazy and drive up our debt. It depends on the assumption that if all else fails the government can print more money and shore up our economic problems.