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Explain How Banks Create Money

question 153

Essay

Explain how banks create money.Compare the effect on the money supply of accepting a cash deposit with that of making a loan.


Definitions:

Contract Price

The agreed amount of money for the exchange of goods, services, or property specified in a contract.

Initiation

The act of beginning or starting something, such as a process, project, or activity.

Maturity

Specified date at which the principal amount of a bond is paid.

Payoff Profile

A plot showing the gains and losses that will occur on a contract as the result of unexpected price changes.

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