This topic contains a solution. Click here to go to the answer

Author Question: Why do banks create money? Do they create money to help the Federal Reserve control the money supply ... (Read 252 times)

nmorano1

  • Hero Member
  • *****
  • Posts: 598
Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason?
 
  What will be an ideal response?

Question 2

Real interest rates at times have been negative. Why would anyone lending money agree to a negative real interest rate?
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

stallen

  • Sr. Member
  • ****
  • Posts: 336
Answer to Question 1

Banks create money to make a profit. Banks create money when they make loans. The loans take the form of checking account deposits. Asking why banks create money is the same as asking why they make loans.

Answer to Question 2

The lender did not agree to a negative real interest rate, instead unanticipated inflation occurred. If the actual inflation rate exceeds the anticipated inflation rate, the actual real interest rate received by lenders and paid by borrowers can end up negative.




nmorano1

  • Member
  • Posts: 598
Reply 2 on: Jun 29, 2018
Excellent


mohan

  • Member
  • Posts: 362
Reply 3 on: Yesterday
Gracias!

 

Did you know?

It is important to read food labels and choose foods with low cholesterol and saturated trans fat. You should limit saturated fat to no higher than 6% of daily calories.

Did you know?

If all the neurons in the human body were lined up, they would stretch more than 600 miles.

Did you know?

The liver is the only organ that has the ability to regenerate itself after certain types of damage. As much as 25% of the liver can be removed, and it will still regenerate back to its original shape and size. However, the liver cannot regenerate after severe damage caused by alcohol.

Did you know?

Urine turns bright yellow if larger than normal amounts of certain substances are consumed; one of these substances is asparagus.

Did you know?

The horizontal fraction bar was introduced by the Arabs.

For a complete list of videos, visit our video library