A commercial banking system with excess reserves has the ability to create money in the by making loans.

Question

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When a commercial banking system has excess reserves, it means they have more money than required to meet the reserve ratio set by the central bank. This allows the banks to make loans and create new money in the economy, through a process called fractional reserve banking. The banks can lend out a portion of their excess reserves, while keeping the required reserve amount in hand. As the loan is spent by the borrower, the recipient of the funds may deposit it in another bank, which in turn can use a portion of that deposit as reserves and lend out the rest. This process can be repeated, leading to multiple rounds of money creation and expansion of the money supply.

A Commercial Banking System with Excess Reserves Has the Ability