Money supply and banks creating money
Hi, I need help with how the central bank regulates the amount of money circulating in the economy.
How does increasing the reserve requirements for commercial banks REDUCE the amount of money in circulation, when lending is essentially 'creating money' and increasing the money supply?
Doesn't increasing the reserve requirement just reduce the rate at which banks can lend, therefore slowing down the growth of the money supply rather than actually decreasing the money in circulation?
How does increasing the reserve requirements for commercial banks REDUCE the amount of money in circulation, when lending is essentially 'creating money' and increasing the money supply?
Doesn't increasing the reserve requirement just reduce the rate at which banks can lend, therefore slowing down the growth of the money supply rather than actually decreasing the money in circulation?
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