The ability of the banking system to make loans depends on excess reserves and the reserve requirement.

Question

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Excess reserves are the funds that banks hold above the required reserve amount. These excess reserves can be used to make loans, thus increasing the ability of the banking system to lend. Additionally, the reserve requirement set by the Federal Reserve limits the amount of reserves that banks are required to hold, which can also impact their ability to make loans.

The Ability of the Banking System to Make Loans Depends