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

Open-market operations to influence, In your answer, discuss the Federal Re...

In your answer, discuss the Federal Reserve's use of open-market operations to influence the money supply and the respective consequences of such actions. Include a discussion of t

Archery instructors need a license, Now suppose that the archery instructor...

Now suppose that the archery instructors need a license in order to charge for archery lessons. The license is free of charge, but there are only four licenses distributed. Assumin

Impact of transaction costs, Assess the impact of transaction costs as they...

Assess the impact of transaction costs as they apply to the Coase Theorem. Evaluate how government assignment of property rights impacts free market exchanges.

Ppcs, how to get full marks in a drawing of ppc diagrams

how to get full marks in a drawing of ppc diagrams

What is the price elasticity of demand, Consider the following utility func...

Consider the following utility function: U = X 1 X 2 Where X 1 and X 2 are quantities consumed of two goods. You are considering the actions of a consumer that maxi

Compare the three investments, Compare the three investments below in terms...

Compare the three investments below in terms of their riskiness. What is the best way to evaluate the riskiness of an investment given the information you have on them? Project Exp

Compute the equilibrium level as-ad model, 1 . Use the AS/AD model to a...

1 . Use the AS/AD model to a . Demonstrate graphically and explain verbally the situation the US economy is currently in. b. In the diagram you drew for part (a) above, sh

Total firm''s cost schedules to calculate, Use the following data on a firm...

Use the following data on a firm's total cost schedules to calculate its average variable cost, average fixed cost, average total cost, and marginal cost schedules. Output Total

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