Credit Creation
Contraction
Increase in required reserve ratio
P.S. monetary base no change
Actual reserve smaller than required reserve
Banks have to call back loans
Withdrawals of deposit
The process will go on and on until the actual reserve is equal to required reserve
Why money supply>monetary base?
Under fractional reserve banking system
Banks are required to keep only a fraction of their deposits as reserves
 lending out the remaining fraction
 create credit by loans to businesses and private individuals
 eventually back into banking system by deposits
 multiple increase in deposits
Monetary base: Amount of reserves + cash held by non-bank public
Money supply: Amount of deposit + cash held by non-bank public
Minimum required reserve ratio
Deposit
The bank will lend out excess reserve
Remarks: the amount of reserves
Money supply: 即使 cash held by non-bank public is 0 都要寫+0