Money and Banking

We use money every day, but what is money? How is it created? The answer is surprising to many: the banks create money. When a bank gives you a loan, they just add the amount to your bank account without having to take money from somewhere else. Money is created out of thin air, but there are limits to how much a bank can create.

Assignments for this topic:

• Watch the videos to understand how money creation really works, or read Mankiw and Taylor, Chapter 11 'The Monetary System' and Chapter 12 'Money Growth and Inflation'.
• Answer the quizzes to check your understanding.
• Look at your country's monetary system. What is the central bank called? What is its mission? What are its main monetary policy instruments? (these are all available on your central bank's internet site) Share your findings on the board below.

Padlet board here.