How much money can banks create, Macroeconomics

Assignment Help:

How much money can banks create?

Does this mean that banks can create an unlimited amount of money? The answer is no - that would require them to lend an unlimited amount of money and that is not possible.

Banks use deposits to create new loans but there is an important difference between deposits and loans. When individuals deposit money in a bank, they can withdraw the money whenever they like. A bank, on the other hand, has no right to cancel a loan and get their money back whenever they like. Banks therefore need reserves so that they can deal with large withdrawals. A bank with small reserves will therefore be less inclined to lend money.

 


Related Discussions:- How much money can banks create

Agency mortgage-backed securities, This release also states that the Federa...

This release also states that the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. Additio

Economics, n 2013, approximately 58 percent of the adult population (245 mi...

n 2013, approximately 58 percent of the adult population (245 million) was employed, the lowest employment rate in 20 years. If the employment rate increased to the prerecession l

Model of labor market in as-ad model, Q. Model of labor market in AS-AD mod...

Q. Model of labor market in AS-AD model? Remember the model of labor market in AS-AD model with constant wages. On the y-axis, we had real wage and on x-axis, we had L. The res

The growth of per-capita gdp in the period immediately, An economy has the ...

An economy has the following parameter values: s ?=.3,d ?=.1,A ?=1,andL ?=100.2 The economy begins at steady state but at some point is attacked by Godzilla, destroying 70% of the

Theory of aggregate deman, unplanned changes in inventory are counted as in...

unplanned changes in inventory are counted as inventory spending by firms.say true or false and justify

Describe keynesian cross model, Q. Describe Keynesian cross model? Keyn...

Q. Describe Keynesian cross model? Keynesian cross model is a simple version of what we call the 'complete Keynesian model' or simply the Keynesian model. Keynesian model has a

Explain the problem involved in consumer price index, Q. Explain the proble...

Q. Explain the problem involved in consumer price Index? To explain the problems involved in calculating CPI we consider MP3 players. If you measure the average price of MP3 pl

Monetary policy vs. fiscal policy, Monetary Policy Vs. Fiscal Policy Ac...

Monetary Policy Vs. Fiscal Policy According to monetarists, money is very important in determining the level of aggregate demand and that monetary policy is very potent. In con

Effects of fiscal policy, (Effects of Fiscal Policy) Recently some legislat...

(Effects of Fiscal Policy) Recently some legislators have called for tax increases to reduce the federal budget deficit. Conservatives have countered that such tax increases could

Find out fixed cost and average cost, Sara runs a small business assembling...

Sara runs a small business assembling personal computers. This table shows her total cost at different levels of output. Number of computers produced

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd