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Chapter 27: Q.19 (page 663)

How do banks create money?

Short Answer

Expert verified

Banks earn through the interest charged on loans and they advance the services which they offer to guests.

Step by step solution

01

Concept Introduction

Banks make capitalist by charging interest on the capitalist they advance. Bank lends capitalist to the customer on the interest. The interest charged to the lender is advanced than the interest paid to the depositor.

02

Explanation

The capitalist- making strategy of banks is charging capitalist from the guests or regard holders for every service offered. For illustration, the depositor has paid interest and the bone who takes the loan is charged interest. Besides this, they charge freights on their services like ATM, operation freights, penalty charges, and commissions. Thus, they earn through the interest charged on loans they advance and the services which they offer to guests.

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Most popular questions from this chapter

For the following list of items, indicate if they are in M1, M2, or neither:

  1. Your 5,000 line of credit on your Bank of America card.
  2. 50 dollars鈥� worth of traveler鈥檚 checks you have not used yet .
  3. 1 in quarters in your pocket
  4. 1200 in your checking account
  5. 2000 you have in a money market account

What are a bank's assets? What are its liabilities?

In many casinos, a person buys chips to use for gambling. Within the casino's walls, customers often can use these chips to buy food and drink or even a hotel room. Do chips in a gambling casino serve all three functions of money?

Explain why the money listed under assets on a bank balance sheet may not actually be in the bank?

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