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It refers to the reserves that banks have to hold in fractional reserve system. A fractional reserve system is a monetary arrangement where bank is allowed to use depositors money for loans as long as they keep a fraction of it as a reserve. For example, if reserve requirement is set to 10% if you deposit 100\$ in your bank they must keep 10\$ and they can ...


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In a fractional reserve banking system, the maximum portion of the money supply represented by bank-issued loans relates to the reserve requirement as $M_{loans} = \frac{deposits}{r} - deposits$ where $r$ is the reserve requirement expressed as a decimal. For example, a bank holding \$1000 in deposit liabilities facing a reserve requirement of 1% is free to ...


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Am I correct to assume that the increase in GDP is exclusively caused by inflation? No. World GDP increases when the world produces more in one year than it did the year before. Inflation means (among other things) that prices increase. Suppose this year the world produces 10 apples valued at two dollars each. Suppose next year the world produces 11 ...


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