The reason that the commercial banking system can generate a multiple expansion or contraction of the money supply is that

Question

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Commercial banks are required to hold a certain percentage of their deposit liabilities as reserves, but they can choose to hold excess reserves beyond the required amount. Banks can use these excess reserves to lend out and create new deposits, which in turn increases the money supply through the multiplier effect. Therefore, the commercial banking system can generate a multiple expansion of the money supply. Conversely, if banks choose to decrease their lending and hold more excess reserves, the money supply can contract.

The Reason That the Commercial Banking System Can Generate a Multiple