Fill in the Blanks Module 25Online version Banking and Money Creation - Fill-in-the-Blank (Part 2) by Zachary Foust 1 Banks money by accepting deposits and making loans . A deposit initially has no effect on the money supply because currency in circulation and checkable bank deposits by the same amount . A bank reduces its by making a loan . By putting cash back into circulation by , banks increase the money supply . The process of money continues via the money multiplier . In tracing out the effect of a deposit , it is assumed that the funds a bank lends out come back to the banking system . In reality , some loaned funds may be held by borrowers in their wallets and not deposited in a bank , the size of the money multiplier . are a bank's reserves over and above the amount needed to satisfy the minimum reserve ratio . The is the factor by which an initial increase in excess reserves increases checkable bank deposits , a component of the money supply . The monetary base is the of currency in circulation and the reserves held by banks . is part of both the monetary base and the money supply . Bank reserves aren't part of the , and checkable bank deposits aren't part of the .
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