Question

Why does an expansion of bank credit causes inflation?

Answer 1

Answer:

It expands the money supply by creating more credit with the use of its many tools. One tool is lowering the reserve requirement. It's the amount of funds banks must keep on hand at the end of each day. When loans become cheap, too much money chases too few goods and creates inflation.

Answer 2

It expands the money supply by creating more credit with the use of its many tools. One tool is lowering the reserve requirement. It's the amount of funds banks must keep on hand at the end of each day. ... When loans become cheap, too much money chases too few goods and creates inflation...