What is Money and what roles do Banks play in the Circular Flow of Income and Spending?
As we'll discover, money isn't exactly what you might think it is. There is alot more money in the economy than there
is cash. And there is alot more income around than money. So money is quite different from either cash or income.
Money is anything generally accepted as a medium of exchange.
A bank is an institution that deals in money and its substitutes and provides other financial
services. Banks accept deposits and make loans and derive a profit from the difference in the interest rates paid and charged,
respectively. Banks perform two essential functions for the macro economy:
* Banks transfer money from savers to spenders by lending funds(reserves) held on deposits.
* The banking system creates additional money by making loans in excess of total reserves.
In the following pages you will find in depth information on The Money Supply, Creation of
Money & Money Multiplier, Banks and the Circular Flow, Banking Regulations, and When Banks Fail.
We hope you'll find this web page informative.
