Fractional-reserve banking
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Fractional-reserve banking is the modern practice of lending multiples of deposits held by banks. For example, a deposit of ten pounds enables the bank to lend ninety pounds to a new borrower (i.e. £100 less £10 kept as reserve), thereby increasing the amount "money" in circulation. The reserve ratio varies from time to time as determined by the central bank and is one of the means of controlling the money supply.[1]
- ↑ Economics, P. A. Samuelson and W. D. Nordhaus