March 23, 2017

Demand deposits

• Created through the fractional reserve system

Fractional reserve system

• Process in which banks hold a small portion of their deposits in reserves and they loan out the excess
• The cash that banks keep on hand is called quiet reserves

Total reserves (TR) or actual reserves (AR)

• Equals to required reserves (RR) or excess reserves (ER)

Excess reserves

• What you can lend out (loans)