1. Magic Trick
Would you believe me if I told you I can take these $10 and turn them into over $34 without:
Printing any new money
Receiving any new money

2. Basics of Banking

3. Deposits Ex: Check/savings deposit, Certificate of Deposit (CD), etc
When a deposit is made into a bank, the bank is required to keep a % of the deposit in reserve
What are reserves?
Known as the reserve requirement (%)
The remaining amount, excess reserves, is free for the bank to use as it pleases
Give it out as a loan
Buy government bonds
Pay expenses

4. Loans Excess reserve money given to borrowers
Bank earns interest on loans to make a profit

5. Monetary Growth
Banking (loans & deposits) can cause the supply of money to increase
“Creates” more money for people to use
How?
Simulation – 2 volunteers
Banker
Bank customer

6. Results of Monetary Growth
How do banks benefit from monetary growth?
More money = more loans = more interest = more profit
How do people benefit from monetary growth?
More money available to buy houses, cars, boats, computers, etc.
Amount of monetary growth depends on the reserve requirement percentage
Lower percentage = more money creation

7. Quick Review
What do we call the amount of a deposit that is required to go into reserves?
What do we call the leftover amount that is not put into reserve?
How do banks use excess reserves to make a profit?
How does banking (loans & deposits) impact the supply of money?
How does the reserve requirement impact monetary growth?
Reserve requirement
Excess reserves
Offer loans which earn interest
Makes it grow
Higher requirement = small growth
Low requirement = large growth