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Essay / Research Paper Abstract
This 5 page paper explains what is meant by credit creation, how it operates, why it is important and how the impact on the money supply can be calculated as well as how it interacts with wider policies such as supply and demand and monetary policy. The bibliography cites 8 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEcreditcr.rtf
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Unformatted sample text from the term paper:
"the creation of money through the issuance of credit" (Liebig, 1997). This may be accurate in the way much of the money in the world today has its origins in
credit being given at some point. It is banks that create this credit/money. For example, where a bank makes the purchase of a asset, such as a stock, a bond
or a bill of exchange, the asset is paid for with the bank making a claim against itself with a note that is issued to the purchaser (Liebig, 1997). This
note is then used to make a withdrawal from the bank, and the money in circulation will increase by that amount (Liebig, 1997). For this reason there is the
need to limit the level of credit creation or money creation by the banks, this may be in the form of liquidity controls, or by the restriction of credit limits
from the central banks (Liebig, 1997). This means that the final source is that of the central bank. Before looking at the role of the credit creation it
is worth a more in-depth consideration to explain how it occurs and the compound affect it has on an economy. Where a bank increases the level of lending it makes,
there will, if all other things are equal, be an expansion of the money supply, money is created though the creation of credit. In real terms, when credit creation is
considered, it is not in terms of the individual bank, although it can be, but of all banks and the amalgamated impact. To explain this an example may be
used and built upon. If an individual borrows money, though a loan, a credit card or an overdraft, they then have that facility to spend the money. However, nothing actually
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