Chapter 15, Problem 19AA

To determine

To create:A chart showing that fractional reserve banking increases the supply of money in economy.

Explanation of Solution

The chart below shows the way in which fractional reserve banking can increase the money supply in an economy:

Figure (1)

Economics Concept Introduction

Introduction:

Fractional Reserve Banking-The banking system in the United States is based on a fractional reserve banking system. Fed has set some specific reserve requirements for banks since 1913. In this system, a small fraction of the deposits is kept in hand in a bank and the remaining or reserve is available for lending.