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If the Federal Reserve increases the required reserves, financial institutions will likely lend out
If the Federal Reserve increases reserves, a single bank can make loans up to the amount of its excess reserves, creating an equal amount of deposits. The banking system, however, can create a multiple expansion of deposits. [ As each bank lends and creates a deposit, it loses reserves to other banks, which use them to increase their loans and thus create new deposits, until all excess reserves
are used up. .............. ]
Expert answered|sujaysen|Points 1874|
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Asked 4/21/2012 1:58:46 PM
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