Money. Credit. Banks. Bank credit animation (lecture notes)

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Money. Credit. Banks. Bank credit animation (lecture notes)

Lecture notes, cheat sheets

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bank loan cartoon

The mechanism of the expanding issue of money is based on the effect of credit and deposit multiplication. Can be defined banking animation. She represents the process of multiple (multiplicative) increase (decrease) of money as permanent deposits in commercial banks as a result of an increase (decrease) in bank reserves when commercial banks carry out credit, deposit and settlement operations within the banking system. Both expansion and contraction of the money supply can be multiplicative.

Given that deposits are the only form of money, the bank (deposit) multiplier can also be called the money multiplier.

Multiplier denotes the maximum amount of new money (deposits, loans) that can be created by one monetary unit of the initial deposit (loan). Mathematically, the multiplier (M) is the number (coefficient) by which the value of the deposit (loan) is multiplied to obtain its total possible increase as a result of the multiplicative expansion of deposits (loans). Multiplier formula: M = 1/R, where R is the required reserve ratio (in percent).

The process of bank emission is characterized from the standpoint of the bank, credit and deposit sides of the multiplier. The banking side characterizes the subject of animation, defining it as a system of commercial banks. The credit side reveals the engine of the multiplication process as a result of lending to the economy. The deposit side reflects money on CB accounts as an object of multiplication.

Author: Shevchuk D.A.

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