After the Federal Reserve increases reserves in the banking system through open-market purchases, banks create new deposits through multiple rounds of lending and accepting deposits until the:

Question

Quizplus · Accepted Answer

Banks will continue to create new deposits and lend out reserves until the actual reserve/deposit ratio is equal to the desired reserve/deposit ratio. At this point, they will stop lending and accepting deposits as they have reached the desired level of reserves. The other options are not necessarily true or relevant to the process of the banking system creating new deposits.

After the Federal Reserve Increases Reserves in the Banking System