How does the required reserve ratio impact deposit expansion?

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The higher the required reserve ratio, the less deposits will expand.  This is how the required reserve ratio impacts deposit expansion.

When a person deposits money in the bank, some is held as reserves and the rest is loaned out.  If more money is loaned out, deposits in various banks rise as people deposit the money they have borrowed.  In this way, the money supply increases as deposits expand.  But if the required reserve ratio goes up, the rate of deposit expansion goes down.  A higher percentage of deposits are held in banks as reserves and a lower percentage is loaned out to become new deposits.

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