Author Question: Explain the process by which the banking system creates money. What will be an ideal ... (Read 152 times)

Mr. Wonderful · **on:** Jun 29, 2018

Explain the process by which the banking system creates money.

What will be an ideal response?

Question 2

A customer at an auction who obtains an antique chair by outbidding several other prospective purchasers

A) may be paying more than the opportunity cost of obtaining the chair.
B) pays a price other than opportunity cost.
C) pays more than its real cost of his bid exceeds the original cost of the chair plus the cost of running the auction.
D) pays the opportunity cost of the last disappointed bidder.

SomethingSomething · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

When a bank gains excess reserves, it uses the excess reserves to make a loan. The person or a business receiving the loan receives a depositmoney The borrower then generally spends the loan and it ends up as a depositmoneyin another company's account. That company's bank then gains some excess reserves, which it loans, and so more money is created. Thus the banking system creates money by making loans.

Answer to Question 2

D