Which of the following must be present to reach a private ...

[genevieve1028]

Which of the following must be present to reach a private solution to an externality problem?
 
  A) The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution.
  B) The transactions costs to negotiate a solution must be relatively low.
  C) The government must approve the solution for it to be a legal solution.
  D) A majority of the parties affected by the externality must agree to a solution.

Question 2

How do banks create money?
 
  What will be an ideal response?

[perkiness]

Answer to Question 1

B

Answer to Question 2

Banks within the banking system create money by creating deposits, which are part of the nation's money. Banks create deposits by making loans because part or all of the loans they make will be deposited in another bank. For instance, a student given a loan may purchase books at the local bookstore. The bookstore will then deposit the proceeds into its bank as part of the bookstore's checking account. Thus the loan has created new deposits at the bookstore's bank.