ECON102 Lecture Notes - Lecture 26: Overnight Rate, Aggregate Demand, Reserve Requirement

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ECON102 Full Course Notes
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ECON102 Full Course Notes
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Econ 102 lecture 26 banks and crea9ng money. A simple way to account for a bank"s transac2ons. Records changes in banks assets and liabili9es. The process above increases the money supply by (from chapter 14. pptx , slide 8) Money is created with repeated cycles of lending and deposi2ng of funds. Essen2ally when a bank receives a deposit they can use that to credit the account of someone who wants a loan, thus crea2ng money and making them pay the bank back. This has in a2onary e ects, as the bank has not given you any physical money, but has increased the money supply regardless. I honestly do not have a good grasp of this concept myself, so it"s very hard to explain. The money mul9plier is the ra2o of money created by the lending ac2vi2es of the banking system to the money created by the central bank.

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