Fractional Reserve Banking Expla

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banks are allowed to create money
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through a system called fractional
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reserve banking
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whenever you deposit money the bank is
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legally required to keep a certain
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percentage of it somewhere safe but can
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lend everything else here's an example
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based on a ten percent reserve
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requirement John goes to his bank and
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deposits $1,000 john's bank keeps $100
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and lends the remaining $900 to mine
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there is now $1,900 in the financial
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system
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John's one thousand dollar deposit and
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Mike's nine hundred dollar loan next
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Mike uses the time hundred dollars to
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buy a laptop from counter then Karen
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depositor nine hundred dollars at
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another bank the bank keeps 10% and
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lends the remaining eight hundred and
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ten dollars to George there is now two
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thousand seven hundred and ten dollars
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in the system John's one thousand dollar
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deposit Karen's nine hundred dollar
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deposit and George's eight hundred and
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ten dollar loan this goes on and on
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until John's initial $1,000
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has turned into approximately ten
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thousand dollars believe it or not
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commercial banks actually create more
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money than central banks