[HELP]Financial market and its central bank.?

Question

Hi, I am a student studying finance and have a few questions that I need your help to understand.

According to my book, it says
"The payment for government bonds is deposited in a bank which then has larger customer deposits but more importantly it has an equal increase in reserves."

What I can't understand is that How can payment for government bonds be deposit? Even if it does, then

Why does it cause an equal increase in reserves??

Would you explain this please?
I am looking forward to having helpful answers from you.
Thanks!

Answer 1

Don't know who wrote your book, but they sure try to make things difficult ...

Lets rewrite it in an attempt to make sense of it ...

We assume that a Customer of a Bank has sold some Bonds.

The 'payment' (= money) 'for government bonds' (= 'for selling something') is 'deposited in' (= received by) a bank which then has 'larger customer deposits' (= owes that money to the customer) but more importantly it 'has an equal increase in reserves' (= more money to lend)."

In other words, after stripping out the irrelevancies (Bonds) and double talk ('reserves') we end up with :-

"when a Customer puts Money in a Bank, the Bank can lend that Money to some-one else ..."