If the Federal Reserve decreases the reserve rate from 4% to 2%, how does this affect the amount of money that would result because of fractional-reserve banking from an initial deposit into a bank of $55,000?
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The reserve rate or reserve ratio of 4% means that the bank must keep 4% of the cash that was deposited. They must keep it in their vault. The rest (96%) can be loaned out to others to generate more money. Hopefully based on this you can see how lowering the reserve ratio would affect how the bank makes money.