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Q: If the Federal Reserve increases the required reserves, financial institutions will likely lend out
A: 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. .............. ]
sujaysen|Points 2128|
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Asked 6/11/2012 9:47:38 PM
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