Money & Banking Lab
How do banks create money?
When you deposit $1,000, your bank keeps a slice and lends the rest. That loan becomes someone else’s deposit… and the cycle repeats. Watch the money supply grow.
Each round of lending
Key ideas
Money multiplier = 1 ÷ reserve ratio. With a 10% reserve requirement, a $1,000 deposit can support up to $10,000 of deposits across the banking system.
In practice the multiplier is smaller: banks hold extra reserves and people hold cash. After 2008 banks held huge excess reserves, so the Fed’s money creation did not multiply the way textbooks predict.
Today the Fed mainly steers the economy with interest rates (paying interest on reserves) rather than reserve requirements. See the effect of money supply growth on inflation in the main simulator.