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Unformatted text preview: be held back in reserves and the rest may be loaned out. Given that this money is deposited into the bank again rather than stored in a mattress, the liability of deposits increases by $500 to $1500 while the reserves increase by $250 to $750. The bank now has $250 with which to make loans. Given that it loans out the entire amount, which is then deposited again, the liability of deposits increases by $250 to $1750. Furthermore, the assets of loans increase to $750 and the assets of reserves increase to $875. This process continues until the reserve amount is equal to the total amount of the money supply. Until that time, each loan that is made and redeposited increases the money supply....
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This note was uploaded on 02/09/2012 for the course ECO ECO2013 taught by Professor Jominy during the Fall '08 term at Broward College.
- Fall '08