1 A few preliminaries Reserves (R):the portion of deposits that banks have not lent. To a bank,liabilities include deposits, assets include reserves and outstanding loans 100-percent-reserve banking:a system in which banks hold all deposits as reserves. Fractional-reserve banking: a system in which banks hold a fraction of their deposits as reserves. CHAPTER 18 Money Supply and Money Demand slide 4 CHAPTER 18 Money Supply and Money Demand slide 4 A few preliminaries ▪ Reserves (R ): the portion of deposits that banks have not lent. ▪ To a bank, liabilities include deposits, assets include reserves and outstanding loans ▪ 100-percent-reserve banking: a system in which banks hold all deposits as reserves. ▪ Fractional-reserve banking: a system in which banks hold a fraction of their deposits as reserves. 1