What is the term for converting reserves into bank deposits throughout the banking system?

The correct response identifies the term “multiple deposit creation” as the process through which banks transform reserves into a larger amount of bank deposits across the banking system. This process operates on the principle of fractional reserve banking, where banks are permitted to lend a portion of their deposits while maintaining a fraction as reserves.

When a bank receives deposits, it must keep a minimum reserve requirement but can lend out the remainder. This lending action generates new deposits in the system when borrowers spend the funds, which then get redeposited in banks, allowing those banks to lend out a portion again. This cycle continues, resulting in an increase in total deposits that can exceed the initial amount of reserves due to the multiplier effect. Therefore, "multiple deposit creation" effectively describes this operation within the banking system, highlighting how initial reserves can lead to a significant increase in overall deposits available for use in the economy.