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The Counterintuitive Nature of Money Creation by Commercial Banks
The Role of Banks in Money Supply
A common belief is that a commercial bank acts simply as an intermediary, taking in deposits from savers and lending those same funds to borrowers. Explain why this view is incomplete and how the act of lending by a commercial bank has a different, more direct effect on the total amount of money in the economy.
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Economics
Economy
Introduction to Macroeconomics Course
Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Analysis in Bloom's Taxonomy
Cognitive Psychology
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Related
A commercial bank has total customer deposits of 500,000 loan for a local construction company. When the loan is issued, the bank credits the company's checking account with the full amount. Immediately after this single transaction, what is the new total of customer deposits held at this bank?
The Role of Banks in Money Supply
Analyzing a Common View of Banking
A commercial bank functions primarily as an intermediary, collecting funds from savers and then lending those same funds to borrowers. Consequently, the total amount of new loans a bank can make is strictly limited by the total amount of its existing customer deposits.
Bank Balance Sheet Analysis
Critique of the Bank Intermediary Model
There are two competing views on how commercial banking functions. Match each statement below to the conceptual model it best represents.
Analyzing a Public Statement on Banking
A politician makes the following statement: "To stimulate economic growth, we must encourage households to save more. This increased pool of savings will allow our commercial banks to lend more money to businesses for investment." Which of the following provides the most accurate critique of the politician's statement based on the actual mechanics of the modern banking system?
A commercial bank approves and issues a $100,000 loan to a customer. Arrange the following outcomes of this single transaction in the correct logical sequence to illustrate how new money is created.