Reference no: EM132425327

Part 1: Please respond to the following:

Create an analogy or metaphor that explains how banks create and destroy money - one that would be understood by someone with absolutely no background in economics.

Part 2: Respond to classmate's discussion below:

"The easiest way for a bank to create money is by issuing loans. Around this time of the year, shopping is one of the biggest money makers of the year. A lot of the time people don't have enough money to buy the things they need/want for everyone. So, what do people do when they can't afford it; they put it on a lovely credit card. Credit cards are essentially a loan from the bank with the agreement that it will be eventually paid off. Credit cards also accumulate interest which the lendee will pay for, thus creating more and more money. Once the card is paid off, the debt is gone and there is more money in the economy to keep circling."