Sunday, March 29, 2015

AP macroeconomics part 8 video response

Banks create money by making out loans. Money multiplier is one over the reserve requirement ratio. To find how much money is created by a banking system multiply the money multiplier by the loan amount. Even if it is estimated to be a lot of money it does not mean that is what will happen because we are assuming that the banks are holding no excess reserves. If a bank holds excess reserves the money created will be lower.

No comments:

Post a Comment