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

Because when the bank loans out the money, it doesn’t count it as a deduction of the money the bank has on hand. For example, say that the bank has $100,000 in deposits, with a reserve rate of 10%. The bank is able to loan out 90%, or $90,000. Then, the person who took out the loan spends the money buying what they wanted to buy, and the person that they bought it from deposits it back in the bank. The bank now gets to claim that they have $190,000 in deposits on hand, which means that there’s now $90,000 of new money that has been added to the money supply.