Thurs. 10/04/08 17:26 EDT
.post #51
Yes, I see that now. Thank you.
The supply increases, but not necessarily the number of new dollars actually chasing the same number of goods (see the edit to my earlier post). The dollars in the depositor’s account remain “inert” with respect to the buying power of dollars in general, until the depositor actually uses them to buy something.
This I don’t understand.
Let’s suppose Mr. MOTS deposits $100 in Effar Bank, then Effar Bank lends $90 to Gates. Effar Bank has $90 in loans, $10 in deposits, but MOTS’s balance still shows the full $100.
Then, MOTS writes a check for $100, and his bank balance now shows $0.00.
Effar Bank must replenish $10, somehow, to meet the minimum 10% reserve requirement. At this point, the Fed lends Effar Bank the $10.
Is this incorrect?