Banks create money by aLending out part of their deposits bIssuing debit cards cAccepting checks
Question
Banks create money by aLending out part of their deposits bIssuing debit cards cAccepting checks
Solution
Banks create money primarily through the first option, lending out part of their deposits. Here's a step-by-step explanation:
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When a bank receives deposits, it keeps a certain percentage (known as the reserve ratio) in reserve and lends out the rest.
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The money lent out is then deposited by the borrowers into their bank accounts or used to pay for goods and services, and eventually ends up in someone else's bank account.
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This
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