Explaining Money & Banking

CHAPTER 11

The Money Supply Process and Money Multipliers

One of the most important facets of the banking system is how it creates money. The money creation process develops across multiple actors and choices within the banking system, which primarily includes banks—who act as lenders and as depository institutions—and economic entities (individual people, businesses, and governments)—who act as borrowers and as depositors. Central banks are another important actor in this process—as they attempt to use the tools of monetary policy to alter the money supply. While central banks often try to influence the money supply, for example, in response to crises like the Great Depression, the Great Recession, and COVID-19, we will now describe the economics ...