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

Banks do not operate on fractional reserve! This is a myth. Easiest explanation for how banks work is a Bank of England paper on money creation. PDF is public.