Two Qualifications to Deposit Creation

The actual financial system is more complicated than our simple banking example. We have shown that S IOOO of new reserves. put into a bank will ultimately result in an increase of 10,000 of bank deposits. This example assumed that all the new money remained as checking accounts in,the banking system and that’ no bank would have excess reserves. Let us see what would happen if some ‘money leaked into circulation or if some banks had excrescences.

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