4 concepts
The Fractional Reserve System
A fractional reserve system is one in which banks hold reserves whose value is less than the sum of claims outstanding on those reserves.
Example Transactions Showing How a Bank Can Create Money
The amount of money created by banks depends on the size of the deposit and the money multiplier.
The Money Multiplier in Theory
The money multiplier measures the maximum amount of commercial bank money that can be created by a given unit of central bank money.
The Money Multiplier in Reality
In reality, it is very unlikely that the money supply will be exactly equal to reserves times the money multiplier.