Banks can create money through lending from excess reserves.
a) The National Bank of the Undemocratic Republic of Swagnervania receives $1.5 million. The Federal Reserve of the Undemocratic Republic of Swagnervania stipulates all commercial banks use a required reserve ratio of 7%. Calculate the National Bank of the Undemocratic Republic of Swagnervania excess reserves. What is the maximum amount of money that can be created by this $1.5 million?
b) So what economically defendable explanation is there for the National Bank of the Undemocratic Republic of Swagnervania to get the $1.5 million in the first place?