How Banks Create Credit in the Wider Economy

The video explains how banks and financial institutions create credit in the economy. It clarifies misconceptions about credit creation, emphasizing that banks must balance assets and liabilities on their balance sheets. Through examples, it illustrates how loans and deposits are recorded and how the cash ratio affects the money supply. The video concludes with key takeaways on the credit creation process.

What happens to a bank's balance sheet when a loan is issued?

What is the significance of maintaining equal value on both sides of a bank's balance sheet?

Illustrate how a deposit impacts the money supply in the economy.