Banks create money by

Assessment: WAEC SSCE - Economics - 1998 (Objective) Subject: Economics

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Banks create money by
Answer Details
Banks create money by lending out deposits to borrowers. When someone deposits money into a bank account, the bank is required to hold only a fraction of that deposit as reserves, which means they can lend out the rest. This money lent out to borrowers is new money created by the bank, which then becomes deposits in the accounts of the borrowers. This process of lending and creating new money continues, resulting in an expansion of the money supply in the economy.
Read lesson note on Banking (JAMB)
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