Question

basic concept or credit creation

Answer 1

The traditional view adopted in the money supply debate is that banks create bank money by granting loans. This explanation is then extended to suggest that banks there by create money out of nothing. However, this is an inadequate caricature of the process of bank money creation.Credit Creation is a situation in which banks make more loans to consumers and businesses, with the result that the amount of money in circulation increases. In other words it refers to the unique power of the banks to multiply loans and advances, and hence deposits.