According to the Keynesian model, an increase in any of the components of aggregate expenditure or changes in policy that cause one or more of these components to increase will lead to an increase in aggregate demand. An increase in the discount rate, a decrease in unemployment compensation, and a decrease in government spending accompanied by an equal reduction in taxes or simply a decrease in government expenditures on public works will all result in a decrease in aggregate demand. Only an increase in autonomous investment increases aggregate demand. Commercial banks can create money by transferring depositors' accounts at the Federal Reserve for conversion to cash buying Treasury bills from the Federal Reserve sending vault cash to the Federal Reserve maintaining a 100 percent reserve requirement lending excess reserves to customers Under a fractional reserve banking system, banks are required to keep only a small fraction of their total demand deposits as reserves to meet their liabilities. The ability of banks to create money depends on the amount of excess reserves they hold.
Banks can create money and expand the money supply by lending out excess reserves to customers.
The maximum amount of money the banking system can create is determined by multiplying the amount of excess reserves by the money multiplier. Imports will rise, decreasing the trade deficit. The rate of saving will increase. Unemployment and inflation will both increase. Businesses will purchase more factories and equipment.