Question

2. Explain the role of required & excess reserves in the banks approach to the making of loans to the consumer & business.

Answer 1

Every time a dollar is deposited into a bank account, a bank's total reserves increases. The bank will keep some of it on hand as required reserves, but it will loan the excess reserves out. When that loan is made, it increases the money supply. This is how banks “create” money and increase the money supply.

Step-by-step explanation: