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What is Banking System and Money Supply Explained about?

The banking system allows money to be created through the money multiplier effect. When a deposit is made in a bank, the bank is required to keep a percentage as reserves while lending out the rest. These loans are then redeposited and lent out again, creating more money. For an initial $100 deposit with a 20% reserve requirement, the total money created in the system is $500. The money multiplier is the inverse of the reserve ratio, and shows how much extra money is created by the banking system through le

Author

Cyprian Lubuva

Language

EN