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key principle:

• a single bank can create money (through loans) by the amount of excess reserves
• banking system as a while can create money by a multiple (deposition) money multiplier of the initial excess reserves.

factors that weaken the effectiveness of deposit multiplier:

1. if banks fail to loan out all of its excess reserves.
2. if bank customers take their loans in cash rather than in their checking account deposits it creates a cash or currency drain.

MONEY MARKET:
inverse relationship between money, demand, and interest rates.

DM ; MD up    :  ir down

money demand shifter:

1. change in price level
2. change in income