How much money can banks create, Macroeconomics

Assignment Help:

Q. How much money can banks create?

Does that mean that banks can create an unlimited amount of money? No the answer is no - it would require them to lend an unlimited amount of money and as we know that is not possible. 

Banks use deposits to create new loans though there is a significant difference between loans anddeposits. When individuals deposit money in a bank, they may withdraw the money whenever they like. A bank, conversely, has no right to cancel a loan and get their money back whenever they want to. Banks thus need reserves so that they can deal with large withdrawals. A bank with small reserves will hence be less inclined to lend money.


Related Discussions:- How much money can banks create

Trade, What is the difference between heckscher_olin theory and comparative...

What is the difference between heckscher_olin theory and comparative theory

Money, definition of cheap money

definition of cheap money

Economic theory helps society, Do you agee or disagree " Economic theory he...

Do you agee or disagree " Economic theory helps society reach economic goals that it has selected for itself?" Justify your answer.

IS-curve in the AS-AD model, The IS-curve in the AS-AD model ...

The IS-curve in the AS-AD model The IS-curve is not affected by P in the AS-AD model We can define an IS-curve in the AS-AD model similarly to

What is the value of the swap in terms of both bonds and fra, Suppose that ...

Suppose that the yield curve is flat at 5% per annum with continuous compounding. A swap with a notional principal of $100 million in which 6% is received and six-month LIBOR is pa

Perfect competion, discuss the contention that the existance of a labour ma...

discuss the contention that the existance of a labour market in a perfect competion is a fallacy

Calculate the normalization constant, This is a maple assignment, but it is...

This is a maple assignment, but it is also a research assignment. You will have to consult earlier worksheets, textbooks, and perhaps the internet to answer some of these questio

Factors you would examine in your research, Identify a generic organization...

Identify a generic organization (e.g., manufacturing plant, hospital, educational institution). You will use this same organization in your Final Project. Assume that you are part

Marginal tax rates imposed on individuals, Compared with the situation befo...

Compared with the situation before 1981, the marginal tax rates imposed on individuals and families with high incomes are now lower. What was the top marginal personal income tax r

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