How Money is Created

Money is created in two ways. First money comes from borrowing it and spending it. “Most of the total money supply is created by banks making loans to the non-bank public”. (Smithy, 2008) Second, it can come by being printed up “out of thin air” by a central bank (the Federal Reserve in the United States). Central banks have two major powers: “they can regulate the nominal level of short-term interest rates, and they can purchase assets such as government debt, with newly printed money”. (Benson, 2004) When the central bank lowers the rate of short-term interest, it greatly encourages corporate and individual borrowing and spending. Base money is created when the Federal Reserve performs what are known as Open Market Operations. Here, the Federal Reserve injects money by buying Government Securities, or also known as , creating money “out of thin air”, which then becomes owned by the government (the American Taxpayer) to the Federal......

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Title: How Money Is Created
Approximate Word Count: 452
Approximate Pages: 2 (250 words per double-spaced page)

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