Unit 3.5 · Demand Management (Monetary Policy)
Money Creation (HL only)
AO2HL
Syllabus Requirement
Explains how commercial banks create money through fractional reserve banking.
Assessment Objectives
AO2Application and Analysis
HLThis topic is assessed at Higher Level only.
Summary
This topic covers the process of money creation by commercial banks, which involves transforming deposits from savers into loans for borrowers. Understanding this process is essential for grasping how banks influence the money supply and overall economic activity through credit creation.