Tuesday, November 17, 2015

IT SAYS IN MY ECONOMICS TEXTBOOK THIS: "NOTICE THE MONEY SUPPLY HAS INCREASED.WHEN JENNY BORROWED 900 AND THE BANK PUT THAT AMOUNT IN HERCHECKING...

No, it is not correct.  Your book is
right.


When the bank loans money out to Jenny, she has
money that did not exist before.  Presumably your book mentions some other person who
deposited probably $1000.  We'll call him Chuck.  When the bank gave $900 to Jenny, they
did not take money out of Chuck's account.  He still has $1000 in the
bank.


If they took his money and lent it, they would not be
creating money.  But they did not take his money.  They created new money based on his
deposit -- secured by his deposit.


If the bank actually
took away your money and lent it to someone else, no one would ever put money in the
bank because it would be too hard to know when you would be able to get that money
out.

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