Money creation refers to the process by which banks and other financial institutions create new money, usually in the form of bank deposits, through lending and other financial activities. When a bank makes a loan, it creates a new deposit for the borrower, which increases the total amount of money in circulation. This process can also occur when the central bank of a country engages in monetary policy, such as buying or selling government securities, which can affect the amount of reserves held by banks and influence the amount of money they can lend. Money creation is an important concept in macroeconomics and monetary policy, as it can impact inflation, interest rates, and economic growth.
Answers & Comments
Verified answer
Answer:
Money creation refers to the process by which banks and other financial institutions create new money, usually in the form of bank deposits, through lending and other financial activities. When a bank makes a loan, it creates a new deposit for the borrower, which increases the total amount of money in circulation. This process can also occur when the central bank of a country engages in monetary policy, such as buying or selling government securities, which can affect the amount of reserves held by banks and influence the amount of money they can lend. Money creation is an important concept in macroeconomics and monetary policy, as it can impact inflation, interest rates, and economic growth.