Chapter 12: Question 7.<\/p>\n
The United States government produces billions of dollars in banknotes and coins for use in everyday transactions, but despite this, currency alone does not represent money creations. The main reason behind is that money is created when the financial institutions accept deposits and make loans. The financial institutions which are the banks act as a bridge between the borrowers and savers creating a demand for money while on the other side the supply is provided by the banks. <\/p>\n
The banks\u2019 ability to make loans, which is also the ability to create money is limited to a certain percentage of its total customer deposit implying that if the bank has a large customer deposit, they will have a higher chance of providing out loans that are responsible for the money creations. When giving out loans, a certain percentage of their total deposit in reserves while the rest is lent out beginning the process of money creation. Therefore, the printing of money in billions of dollars or the currency alone does not contribute to money creations.<\/p>\n","protected":false},"excerpt":{"rendered":"
Chapter 12: Question 7. The United States government produces billions of dollars in banknotes and coins for use in everyday<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-53661","post","type-post","status-publish","format-standard","hentry"],"yoast_head":"\n