An individual bank can create deposits to the extent of its

Question

Quizplus · Accepted Answer

An individual bank can create deposits to the extent of its excess reserves, which is the amount of funds that the bank has available to lend out after keeping the required reserves with the central bank. The bank can use these excess reserves to extend loans and create new deposits, thereby increasing the money supply in the economy. However, the bank cannot create deposits beyond its excess reserves, as it would face a shortage of reserves and may have to borrow from other banks or the central bank to meet its reserve requirements.

An Individual Bank Can Create Deposits to the Extent of Its