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Chapter 14: Q.19 (page 353)

How do banks create money?

Short Answer

Expert verified

They 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 of Solution

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

What do you think the Federal Reserve Bank did

to the reserve requirement during the 2008–2009 Great

Recession?

Why do we call a bank a financial intermediary?

What is the risk if a bank does not diversify its

loans?

Explain the difference between how you would

characterize bank deposits and loans as assets and liabilities on your own personal balance sheet and how a bank would characterize deposits and loans as assets and liabilities on its balance sheet.

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

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