Commercial banks are financial institutions that accept deposits from individuals and businesses, and provide loans and other financial services. They play a crucial role in the economy by facilitating money circulation.
Fractional Reserve Banking: This term refers to the practice where commercial banks keep only a fraction of their deposits as reserves and lend out the rest.
Bank Reserves: These are funds held by commercial banks either as cash or on deposit with central banks to meet withdrawal demands and maintain stability.
Money Multiplier: The money multiplier is a measure of how much new money can be created by commercial banks through lending based on their reserve ratios.
What is the primary way that commercial banks create money?
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