Questions: Chapter 17: Money and the Federal Reserve Page(s) 489-494 17.4. How do banks create money? Fill in the blanks to complete the passage about the business of banking. The main function of banks is to accept deposits and then to lend the same money (minus required reserves) back out. Banks make a profit by charging a higher interest rate on loans than the interest rate they pay on deposits. Through the loan process, banks are actually able to create money.

Chapter 17: Money and the Federal Reserve Page(s) 489-494 17.4. How do banks create money? Fill in the blanks to complete the passage about the business of banking. The main function of banks is to accept deposits and then to lend the same money (minus required reserves) back out. Banks make a profit by charging a higher interest rate on loans than the interest rate they pay on deposits. Through the loan process, banks are actually able to create money.
Transcript text: Chapter 17: Money and the Federal Reserve Page(s) 489-494 17.4. How do banks create money? Fill in the blanks to complete the passage about the business of banking. The main function of banks is to accept deposits and then to lend the same money (minus required reserves) back out. Banks make a profit by charging a higher interest rate on loans than the interest rate they pay on deposits. Through the loan process, banks are actually able to create money.
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Solution

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Solution Steps

Step 1: Identifying the first blank

The first blank requires the type of bank that accepts deposits and lends money. The passage is describing the general function of banks, so the word needed here is a general term.

Step 2: Identifying the second blank

The second blank requires the portion of deposits that banks do _not_ lend out.

Step 3: Identifying the third blank

The third blank refers to what banks charge a higher interest rate on compared to the interest they pay depositors.

Final Answer:

The answers are commercial, required reserves, and loans.

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