Creating Money Homework Answers
Creating money is an art, and not everyone is adept at it. Only some crack the code of successfully creating money and property while a majority arenâ€™t able to do so. However, money creation is not a topic that is restricted to only the people of a country at an individual level. Thus, on how creating money homework answers solves the dilemma of understanding concepts properly helps students.
Money creating process:
Governments of all countries concentrate on creating wealth for the nation for its prosperity and increase of economy. This process by the government is termed as money creation. Money creation can be seen as a process by which a government increases the nationâ€™s supply of money.
According to a recent report, in the United States of America, 97% of the money is created by the central banks and private institutions through loans and bank deposits while the government does only around 3% of money creation through its fiscal policy and other such measures.
Central banks also create money, though it is a relatively small amount as compared to the total money created, by proving loans to private institutions and purchasing assets that have a financial value.
It is important for economics and commerce students to realize that how an individual creates money is vastly different from how a bank or nation, for that matter, create money. So, while writing their creating money homework answers, it is important for students to keep in mind as to how different money creation can be when it comes to looking at it from a nationâ€™s perspective.
Regulation of money creation
The central bank monitors and effectively regulates the amount of money that is being created in a country. The central bank does so by calculating the monetary aggregates and judges it against the same parameter over a fixed course of time and at regular intervals. Even though the private institutions do create a lot of money, it is dependent on the central bank of the country as only the central bank has the power to fix interest rates and money transaction policies.
The fiscal policies of the government also influence money creation to an extent. However, it is imperative to keep in mind that the central bank is and should be free from the control of the executive. When one is looking to give creating money homework answers, one should be well accustomed with the fiscal policy of the government and rates of interest fixed by the central bank.
How money is created
- Every country generally has a central bank whose primary objective is to create money and to keep the money in circulation for the smooth functioning of the nationâ€™s economy.
- The central bank decides if it needs to pump in more hard cash into a countryâ€™s economy or not. If it decides that more cash is needed to be put into circulation, it buys assets having financial value like government bonds, currency of other countries from private institutions and treasury bills.
- If the central bank feels the need to remove cash from circulation, it does so by selling these assets to private parties. However, these measures can create money for only a short term, and hence these are done to meet a fixed target within a short period of time.
- Other methods used by the central bank to create money is by lowering interest rates, decreasing the requirements for reserve as well as increasing the amount of money in circulation.
- In the long term perspective, if the central bank so decides, it can set a specific target of reaching a particular currency exchange rate concerning some other country and hence accelerate money creation.
- While creating money, the central bank also takes into account national statistical data like consumer price index (CPI) and the national census.
- Central bank also looks into and monitors the financial transactions of the other national and private banks so as to make sure that are no fraudulent transactions leading to loss of revenue and hence hindering money creation.
Money circulation procedure:
A normal bank creates money by providing loans to its customers and charging an interest rate on it. By doing so, it not only receives the money it lent but also some additional money as interest.
Banks also make money by offering deposits like fixed deposits, recurring deposits and other smart investment options like SIP, mutual funds, and bonds wherein customers are encouraged to put in their money or invest over a period of time in expectation of a healthy return over and above the money invested.
The banks then invest this money into other banks, financial institutions and investment houses or services like aviation, infrastructure or real estate in return for additional revenue, thereby both creating money as well as maintaining its smooth circulation.
The method of money creation is an important aspect of creating money and for students looking for creating money homework answers, it important for them to know the ways in which a central bank creates money.
Different types of money creation
In this electronic and past faced day and age, very little money is actually present as money. By this statement what I am trying to put across is that very little money is present in the form of currency that can be touched or felt, that is, hard cash. Majority of the money is present in the form of assets like treasury bills, government bonds or foreign currency.
Creating Money homework answers helping students
Students are often clueless about how to solve their assignments related to money creation. For correctly answering creating money homework answers, one not only needs to be well acquainted with fiscal policy and interest rates of the country but also have an in depth knowledge of CPI and factors affecting it.