Why are bank deposits money?, Macroeconomics

Assignment Help:

Money is anything which is acceptable in settlement of a debt. But, paradoxically, the main asset used to settle debts in modern economies is other debts. After all, bank deposits are liabilities that the banks owe to their customers. Furthermore, we have seen that banks create liabilities against themselves when they make loans to their customers. In so doing, they are exchanging a debt which is not money for one which is money because bank deposits are acceptable in settlement of a debt. In other words, when a bank grants a loan it is effectively buying a debt which is not usable as money - otherwise it would be spent - in exchange for a debt which is usable as money. So why are banks able to create money? The answer is that their liabilities are acceptable in settlement of a debt because everyone has confidence that, on demand, these liabilities can be converted into cash. So long as this confidence is maintained, bank liabilities will always be acceptable in settlement of a debt, and will always therefore be money.


Related Discussions:- Why are bank deposits money?

Models, give three example of models show endogenous and exogenous varibles...

give three example of models show endogenous and exogenous varibles

Explain the classical growth theory, Q. Explain the classical growth theory...

Q. Explain the classical growth theory? Production function won't provide us with a theory or explanation of growth. It's only a convenient tool that helps us breaking down gro

Effect of real wage in classical labour market, illustrate the effects of a...

illustrate the effects of a reeal wage existing in the labour market if it is perfectly competitive

Average price-earnings ratio, In a survey of 120 publicly-traded companies,...

In a survey of 120 publicly-traded companies, the average price-earnings ratio was 18.5 with a standard deviation of 8.2. When testing the hypothesis (at the 5% level of significan

Stan garner resides in illinois, Stan Garner resides in Illinois and promot...

Stan Garner resides in Illinois and promotes boxing matches for Super sports, INC. an Illinois corporation. Garner created the connect of "ages" promotion- a three fight series of

Describe the economic justification for free trade policies, Some manufactu...

Some manufacturing and agricultural products produced in the Midwest are exported to overseas markets.  US consumers and businesses also purchase many products produced outside the

Influx of foreign labor, If a nation were to experience an influx of foreig...

If a nation were to experience an influx of foreign labor into the market for corn production, the production possibilities frontier for the nation would: a. shift inward due to

Walmart''s strategy of an elements, Elements of Walmart's strategy have evo...

Elements of Walmart's strategy have evolved in meaningful ways since the company's founding in 1962. Prepare a one page report that discusses how its strategy has evolved after rev

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

Exchange rates, can a country have a current account deficit and a capital ...

can a country have a current account deficit and a capital account deficit at the same time?

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