I just built a small spreadsheet to illustrate to myself the iterative loaning and the approach to the limit of the increase in the money supply. I plug in the reserve requirement, and I can take a look at the loan amounts of each loan iteration. I have $1000 as the initial deposit amount. I noticed that, though it is not a perfect correspondance, 10% reserve requirement reaches about 65% of the limit (10000) after 10 loans. 5% reserve requirement reaches about 64% of the limit (20000) after 20 loans, and 2% reserve requirement reaches about 63% of the limit (50000) after 50 loans. It would seem that as the reserve requirement decreases, the lag between the actions of depositors and the ultimate results to the money supply increases. If there were legislation that increased reserve requirement by 1% a year, volitility would increase exponentially over that time. Does this sound right? Any comments?
Volatility of what?
I suppose I don't have a very well founded concept in my head, but by volitile, I'm imagining a faster and more pronounced reaction to flights to and from cash as the reserve % increases.