10182

# Money Creation in the Banking System

This Demonstration shows how banks create money. Every time money is deposited into the bank, part of the money is kept safe by the government (the required reserves), while the rest of the money becomes loanable funds or excess reserves. When the money in the excess reserves is lent to a new person, that money is put into a new deposit and once again some of it goes to the required reserves and the rest becomes excess reserves, and the cycle continues. The total amount of money in the banking system as a result of the initial deposit is found by an infinite geometric series of the initial deposit and the percentage the excess reserve is in relation to the deposit, so the sum of the series is the initial deposit divided by the required reserve percentage. The graph shows the first 10 iterations of the geometric series, showing how the overall money supply grows with each loan.

### PERMANENT CITATION

 Share: Embed Interactive Demonstration New! Just copy and paste this snippet of JavaScript code into your website or blog to put the live Demonstration on your site. More details » Download Demonstration as CDF » Download Author Code »(preview ») Files require Wolfram CDF Player or Mathematica.

#### Related Topics

 RELATED RESOURCES
 The #1 tool for creating Demonstrations and anything technical. Explore anything with the first computational knowledge engine. The web's most extensive mathematics resource. An app for every course—right in the palm of your hand. Read our views on math,science, and technology. The format that makes Demonstrations (and any information) easy to share and interact with. Programs & resources for educators, schools & students. Join the initiative for modernizing math education. Walk through homework problems one step at a time, with hints to help along the way. Unlimited random practice problems and answers with built-in Step-by-step solutions. Practice online or make a printable study sheet. Knowledge-based programming for everyone.