Eco題 deposits and money supply

A) Now banks don't hold excess reserves, so they lend out more money. Households attain these loans for consumption, firms for investments. After all the economic activities in between, the end-receivers of the money put their money in bank as deposits. As banks received the money, they can lend them out again as far as satisfying the reserve ratio. The cycle continues and clearly the amount of deposits increases and so money supply increases.

B) To maximize the money created, all loans lent out by the banks must be fully converted into deposits, i.e. no leakage; because the money expansion process lies on the fact that banks lend out more money after selling deposits. So the first condition is everyone put their money in banks as deposits in stead of holding cash as explained above. And the second condition is there is no import of goods and services as it would result in money circulating outside the local economy and they may not enter back as deposits.

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