Explain how current financial institutions can create $342 out of a deposit of $200
What will be an ideal response?
Answer: After the $200 is deposited into a bank, that bank can use up to 90 percent ($180) to lend out. That loan is then deposited into some other account, 90 percent ($162) of which can then be lent out by the bank. Thus, through loans, $342 = $180 + $162 has been brought into the money supply. Financial institutions can create money not by printing bills and minting coins, but by taking in deposits and making loans. This expands the money supply because they are allowed to loan out most (although not all) of the money they take in from deposits.
You might also like to view...
The primary purpose of company metrics is ________
A) to achieve maximum customer satisfaction B) to make optimal use of the organization's resources C) to maintain an ongoing measure of marketing performance D) to maximize the organization's return on assets E) to minimize the defects in the organization's products
Describe the structure of a typical, non-fragmented market with examples for each segment
What will be an ideal response?