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Banking and Money (Khan Academy)

The Two Printing Presses

The central bank creates new money and buys government bonds with it. Then the banks lend on top of that new money.

18 min150 XP available5 challenges

Put these in order

An open market purchase is when the central bank buys bonds with new money. Put the steps in order, from printing the money to the bank’s new loan.

Earliest cause at the top

  1. It uses them to buy Treasury bonds from anyone who wants to sell

    For example a pension fund, or your uncle. The bonds are now something it owns

  2. The seller puts that cash in a commercial bank

  3. The bank’s reserves go up

    M0 is now 300 instead of 200

  4. The seller now has cash instead of a bond

  5. The bank makes new loans using the new reserves

    So M1 goes up by more than 100

  6. The central bank creates 100 of new notes

    The notes are something it owes

Answer to continue.