4 good questions and answers about "the meaning of money - what banks do"

What is a bank? And what does it do?
A bank is a financial intermediary
it uses liquid assets on the form of bank deposits to finance the illiquid investments of borrowers.
Can banks create liquidity (money)? How?
Yes it can,
because it doesn't keep all the funds deposited with it in the form of highly liquid assets , but lends out that money so there is more currency in circulation, in the form of loans and mortgages
this can only happen if there is not bank runs
What is the tool that we use in determining the money supply? And does that tool do?
  • A T-account
  • it is used to analyze a banks financial position, and summarizes its financial position by showing, in a single table, the business's assets on the left, and liabilities, equity on the right.
What 2 consequences does running out of cash have?
Banking Panic
Bank Run
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