Asked by William Russell on May 01, 2024
Verified
The banking system creates money in the sense that it:
A) prints money.
B) creates excess reserves from loans.
C) creates loans from excess reserves.
D) creates required reserves from loans.
E) creates loans from required reserves.
Excess Reserves
The amount of reserves that banks hold over the minimum required by the central bank to back deposits.
Money Creation
The process by which the money supply of a country is increased through the activities of its central bank and commercial banking system.
Banking System
The network of banks and financial institutions that provide banking services, including deposits, loans, and currency exchange.
- Clarify the process commercial banks utilize to generate money through lending practices.
- Acquire knowledge about how commercial banks are instrumental in the process of money expansion through their loan and deposit operations.
Verified Answer
JM
Jarrett MedinaMay 01, 2024
Final Answer :
C
Explanation :
Banks create money through the process of lending. When banks provide loans, they do not physically print money but create deposits in the borrower's account, effectively increasing the money supply. This process is based on having excess reserves, from which they can lend out, thus 'creating loans from excess reserves.'
Learning Objectives
- Clarify the process commercial banks utilize to generate money through lending practices.
- Acquire knowledge about how commercial banks are instrumental in the process of money expansion through their loan and deposit operations.