It is possible because there are multiple banks in the financial system, they are required to hold only a fraction of their deposits, and loans end up deposited in other banks, which increases deposits and, in essence, the money supply.
Using the Money Multiplier Formula Using the money multiplier for the example in this text: Smart People Should Build Things: Personal Finance. Popular in Monetary Economics.
They also need to understand how to calculate each term and understand how the terms are related to each other. It is also unregulated by any central bank, but is created online through people solving very complicated mathematics problems and getting paid afterward.
Mahedrz Gavali. Parineeta Sharma. If all banks loan out their excess reserves, the money supply will expand. The money supply consists of multiple levels.
This Changes Everything: How they effect the economy. Introduction to Monetary Policy and Bank Regulation. Using a simple T-account is a visual method to demonstrate the relationships. The rates on required and excess reserves are determined separately and depend on the targeted federal funds rate.
But the bigger picture is that a bank must hold enough money in reserves to meet its liabilities; the rest the bank loans out. Because of the banking industry's importance to the economy, national authorities regulate banks by obligating them to hold a certain amount of required reserves with central banks.
Devil in the Grove: It is calculated as 1 - [reserve ratio]. Yanii Perez.
Calculating Bank Reserves. This will cost you 1 mark. Umesh Agarwal.