Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

The Credit Expansion Process 213t 3 900,000 Cash Demand depositsmade by A 900,000t 4 810,000 Loans to V Cash 810,000We will assume that Borrower V withdraws his moneyand pays Creditor B, who is also a customer of the bank anddeposits his money back into it. This repetitive process continues,producing the following journal entries:t 5 810,000 Cash Demand depositsmade by B 810,000t 6 729,000 Loans to Y Cash 729,000t 7 729,000 Cash Demand depositsmade by C 729,000t 8 656,000 Loans to Z Cash 656,000t 9 656,000 Cash Demand depositsmade by D 656,000This occurs again and again, until at the end of the year thebank’s total deposits equal:[8]1,000,000 + 1,000,000 x 0.9 + 1,000,000 x 0.9 2 + 1,000,000 x 0.9 3 +1,000,000 x 0.9 4 + ... = 1,000,000(1 + 0.9 + 0.9 2 + 0.9 3 + 0.9 4 + ...)