In Fractional Reserve Banking, how is the money supply increased considering reserves are given away? And how are people who deposit the money able to withdraw their entire deposit when some of it is kept to BE a reserve?

Question

So from what I understand, in Fractional Reserve Banking, whenever money is deposited into a bank, they keep a percentage of that money to give out as loans.
So since they are giving out the reserve, how exactly is the bank making money here?
And since people are able to withdraw their entire deposit…. How can that be the case when some of it is taken for the reserve?

In: Economics

Answer 1

If I remember correctly, if the bank has 100k in deposits, it’s not that they lend out 90k, it’s that they create 900k through loans.

Somebody has to borrow the money in order for it to be created. So they then have 900k in loans on 100k in deposits, son the reserve ratio is about 10%