Banking and the Expansion of the Money Supply

Fractional Reserve Banking

How Banks Create Money

Step-by-Step Process

The Money Multiplier

Worked Example 1: Fed Buys Bonds

Worked Example 2: Cash Deposit

Different RRR Values

The Critical Distinction: Deposits vs. New Reserves

When the Fed Creates New Reserves (OMO)

When a Customer Makes a Cash Deposit

Balance Sheets (T-Accounts)

Step 1: Initial Deposit of 1,000, RRR = 20%

Step 2: Bank Lends All Excess Reserves

T-Account When the Fed Buys Bonds from a Bank

Common AP FRQ T-Account Question

Why the Maximum Is Not Always Reached

Connecting to Monetary Policy

AP Exam Tips

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Common Mistakes