How Banks Create Money - Macro Topic 4.4

00:04:12
https://www.youtube.com/watch?v=JG5c8nhR3LE

概要

TLDRIn this lesson, Mr. Clifford elaborates on how banks create money through fractional reserve banking. He details how banks only retain a fraction of deposits (set by the reserve requirement) and lend the remainder out, thus generating new money. Through illustrative examples, Mr. Clifford demonstrates the money multiplier effect, showing how an initial deposit can lead to a significant increase in the money supply. He emphasizes the economic implications of this process and offers a comparison to the FED's bond purchasing, underlining the similarities in how money is injected into the economy.

収穫

  • 🏦 Banks create money out of thin air through loans.
  • 💰 Fractional reserve banking allows banks to lend a majority of deposits.
  • 🔑 Required reserves in the U.S. are 10% of deposits.
  • 🔄 Money multiplier effect amplifies deposits into new money.
  • 💵 An initial $100 deposit can create $900 in new money.
  • 📈 At a 20% reserve requirement, a $500 deposit creates $2,000 in new money.
  • 🔍 FED buying bonds contributes new money to the economy.
  • 💡 Understanding reserve requirements is crucial for grasping banking mechanics.

タイムライン

  • 00:00:00 - 00:04:12

    Mr. Clifford explains how banks create money out of thin air by accepting deposits and loaning out most of the money. While banks are required to keep a certain percentage of deposits as reserves (10% in the US), they can loan out the remainder. This process allows banks to not just hold money, but to increase the money supply through lending. He illustrates this with an example: a $100 deposit leads to $900 in new money creation through the money multiplier effect, emphasizing that only the loaned amount (90 in this case) contributes to the new money supply. This fractional reserve banking system effectively multiplies the initial deposit into a larger amount of money available in the economy.

マインドマップ

ビデオQ&A

  • How do banks create money?

    Banks loan out a portion of deposited money, creating new money through fractional reserve banking.

  • What is the reserve requirement in the U.S.?

    The required reserve ratio in the U.S. is currently 10%.

  • What happens if all customers withdraw their money at once?

    If all customers withdraw at once, it can lead to a bank run, which is very dangerous for banks.

  • What is fractional reserve banking?

    It's a banking system where banks hold a fraction of deposits as reserves and loan out the rest.

  • What is the money multiplier?

    The money multiplier is calculated as one over the reserve ratio, indicating how much money is created from deposits.

  • How much money is created from a $100 deposit at a 10% reserve ratio?

    A $100 deposit at a 10% reserve ratio can lead to $900 in new money created.

  • What happens with a deposit of $500 at a 20% reserve requirement?

    With a $500 deposit at 20% reserve, $2,000 of new money can be created.

  • How does this relate to the FED buying bonds?

    When the FED buys bonds, the full amount is new money, similarly reflected by the money multiplier.

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  • 00:00:00
    hey how you doing econ students this is
  • 00:00:01
    Mr Clifford welcome to ACDC econ right
  • 00:00:04
    now we're going to talk about how Banks
  • 00:00:05
    create money out of thin air
  • 00:00:13
    whoa you heard me right Banks create
  • 00:00:16
    money out of thin air to explain how
  • 00:00:18
    this is possible let's talk about what a
  • 00:00:19
    bank does a bank accepts deposits from
  • 00:00:21
    its customers but it doesn't just hold
  • 00:00:23
    that money if all banks did was hold
  • 00:00:25
    other people's money there'd be no
  • 00:00:26
    profit in that instead what a bank does
  • 00:00:28
    it takes that money and it loans most of
  • 00:00:31
    it out now why can't it loan all of it
  • 00:00:32
    out well because sometimes customers
  • 00:00:34
    come back and they want to withdraw some
  • 00:00:36
    of that money so if you and I and
  • 00:00:38
    everybody else goes to the bank at the
  • 00:00:39
    same time to get our money out the bank
  • 00:00:41
    does not have that money they wouldn't
  • 00:00:42
    be able to pay us and the bank would
  • 00:00:44
    default now that's called a bank run and
  • 00:00:46
    it's bad really bad now in the United
  • 00:00:48
    States we have Deposit Insurance to make
  • 00:00:50
    sure Bank runs like that don't happen
  • 00:00:51
    but the point is the bank doesn't hold
  • 00:00:53
    all those deposits they loan it out now
  • 00:00:55
    the amount of deposits that the bank
  • 00:00:57
    needs to hold by law is called a
  • 00:00:59
    required Reser Reserve in the United
  • 00:01:00
    States it's 10% this means that the
  • 00:01:02
    other 90% is something called excess
  • 00:01:04
    reserves and they're free to loan that
  • 00:01:06
    out it'll make a whole lot more sense
  • 00:01:07
    with an example let's say someone goes
  • 00:01:09
    into a bank and deposits $100 from their
  • 00:01:11
    pocket into the bank now this won't
  • 00:01:13
    change the money supply because money
  • 00:01:15
    from your pocket is part of money supply
  • 00:01:17
    and so is demand deposit sit inside
  • 00:01:19
    Banks so so far there's been no change
  • 00:01:22
    to the money supply but here's where the
  • 00:01:23
    magic happens the bank is going to hold
  • 00:01:25
    a certain percentage by law let's say
  • 00:01:27
    10% so they're going to hold $10 that
  • 00:01:30
    means we're going to loan the other 90
  • 00:01:31
    out now the person who deposited $100
  • 00:01:33
    has $100 in the bank but the person who
  • 00:01:36
    borrowed the 90 also has now $90 that
  • 00:01:39
    $90 is money that was created from thin
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    air that did not exist until the loan
  • 00:01:44
    curve now that person's going to spend
  • 00:01:45
    that $90 and eventually that $90 is
  • 00:01:48
    going to make its way back into another
  • 00:01:49
    bank that other bank is going to take
  • 00:01:51
    that $90 it's going to hold 10% in
  • 00:01:53
    required reserves so $9 is going to hold
  • 00:01:56
    and it's going to loan the other 81 out
  • 00:01:58
    that $81 new dollars is new money supply
  • 00:02:01
    was not created until the loan occurred
  • 00:02:02
    now eventually the person who borrow the
  • 00:02:04
    money is going to take it and spend it
  • 00:02:06
    and that's going to make its way to a
  • 00:02:07
    new bank and the same thing's going to
  • 00:02:08
    happen again and again and again and
  • 00:02:11
    again and again now it turns out that
  • 00:02:13
    the initial deposit of $100 is actually
  • 00:02:15
    going to become $900 of new money
  • 00:02:17
    created the way I got this is by looking
  • 00:02:19
    at something called the money multiplier
  • 00:02:21
    which is one over the reserve ratio so
  • 00:02:22
    in this case when the reserve ratio is
  • 00:02:24
    10% that meant the money multiplier is
  • 00:02:26
    one over .1 so it's 10 now you might be
  • 00:02:29
    asking yourself if the initial amount
  • 00:02:31
    deposited was $100 and the multipliers
  • 00:02:33
    1010 why didn't $11,000 of new money get
  • 00:02:35
    created the reason why is because the
  • 00:02:37
    initial $100 was actually part of the
  • 00:02:39
    money supply to start off with so the
  • 00:02:40
    only amount of new money that was
  • 00:02:42
    created was from the initial loan of $90
  • 00:02:44
    and so $90 * 10 is $900 of new money
  • 00:02:48
    created from the initial loan and this
  • 00:02:50
    is the whole idea of fractional Reserve
  • 00:02:52
    banking Banks hold a portion of deposits
  • 00:02:55
    and they loan the rest out and whenever
  • 00:02:56
    they loan it out they create new money
  • 00:02:58
    did you get that here let me ask you a
  • 00:03:01
    question to see if you actually fully
  • 00:03:02
    understand that concept let's assume
  • 00:03:04
    instead that the reserve requirement is
  • 00:03:05
    20% and someone deposits $500 into their
  • 00:03:09
    Bank from their pocket into the bank
  • 00:03:11
    $500 assuming that Banks loan out all of
  • 00:03:14
    their excess reserves and there's no
  • 00:03:15
    other leakages how much would be the
  • 00:03:17
    increase in the money supply well the
  • 00:03:19
    money multiplier is 1 over2 and the
  • 00:03:22
    multiplier is five that bank is going to
  • 00:03:24
    hold $100 in required reserves and their
  • 00:03:27
    excess reserves of $400 they're going to
  • 00:03:29
    loan out that $400 is all new money and
  • 00:03:31
    all the other steps cause new money and
  • 00:03:34
    so it's 400 Time 5 which is $2,000 now
  • 00:03:38
    don't confuse this idea of skipping that
  • 00:03:40
    first round with the same idea of the
  • 00:03:42
    FED buying bonds for example if the FED
  • 00:03:45
    bought $500 worth of bonds so the FED
  • 00:03:48
    buys bonds and puts $500 in the system
  • 00:03:51
    that whole $500 is new money so in that
  • 00:03:54
    situation the new money created would be
  • 00:03:56
    500 Time 5 which would be $2,000 500 now
  • 00:04:00
    this is tricky but it's just like the
  • 00:04:01
    spending multiplier that you learned
  • 00:04:03
    back when you learned fiscal policy make
  • 00:04:04
    sure to take a look at my other videos
  • 00:04:06
    and my review apps for the AP economics
  • 00:04:08
    test until next time
タグ
  • banks
  • money creation
  • fractional reserve banking
  • money supply
  • money multiplier
  • economic concepts
  • deposit insurance
  • reserve requirement
  • AP economics
  • Mr. Clifford