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respond to this discussion The fractional reserve system allows banks to lend out a multiple of their reserves, creating new money in the economy. When
respond to this discussion "The fractional reserve system allows banks to lend out a multiple of their reserves, creating new money in the economy. When banks make loans, they create new deposits, which can be lent out again. A source states, "Banks only need to keep a specific amount of cash on hand and can create loans from the money you deposit" (Nevil, 2024). This process highlights how a single deposit can create multiple loans and deposits throughout the banking system. Second, the Federal Reserve relies on its ability to influence the behavior of banks and depositors to control the money supply. However, predicting how depositors will react to changes in interest rates is challenging. If "consumers, investors, and businesses panic about economic circumstances, they tend to run to their banks to withdraw everything they can to prevent further losses" (Nevil, 2024). So, it can lead to a contraction in the money supply, regardless of the actions taken by the Federal Reserve. To keep these problems in check, the Federal Reserve can employ open market operations, adjust research requirements, communicate policies, and provide guidance
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