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I am going to depoist my $1,000 into my checking account
Balance= $1,000. Now, the bank will lend money determined by the required reserve ratio.
Now, the bank is allowed to lend $900 because the RRR is 0.1 or 10%
The bank can lend Esther $900 and she can deposit it to her checking account.
Esther's $900 have now been included in M1. The loan caused the money supply to go from $1,000 + $900 = $1,000. Now, Esther can use her $900 to buy a car from Alex.
Alex deposits the $900 from Esther's account into his account. The bank keeps ten percent of his deposit ($90). Then , the bank will lend $810 to its customers which is then added to the money supply. Now, when you add $1,000 + $900 + $810 = 2,710
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