How Do Banks Create Money Out of Thin Air?

Banks can create money just by lending it to people, it’s like having a cookie jar that gets bigger every time you take a cookie.

Imagine your friend has a piggy bank. When they want to buy something, instead of taking coins out of the piggy bank, they borrow some money from the bank. The bank gives them cash or a card with money on it, and now the bank has a new loan on its books.

But here’s the fun part: when your friend uses that borrowed money to buy something else, like ice cream, that money goes into another person's piggy bank (the ice cream shop owner’s). That means two people have more money now, even though the bank only had one cookie jar to start with!

It’s like a game of passing around cookies. Every time someone takes a cookie from the bank, the bank just adds a new cookie to its jar, and soon everyone has way more cookies than they started with.

1. Someone borrows money from the bank.
2. The bank gives them cash or a card (like a magical piggy bank).
3. That money goes somewhere else (like an ice cream shop).
4. Now two people have more money, and the bank just created it! Banks can create money just by lending it to people, it’s like having a cookie jar that gets bigger every time you take a cookie.

Imagine your friend has a piggy bank. When they want to buy something, instead of taking coins out of the piggy bank, they borrow some money from the bank. The bank gives them cash or a card with money on it, and now the bank has a new loan on its books.

But here’s the fun part: when your friend uses that borrowed money to buy something else, like ice cream, that money goes into another person's piggy bank (the ice cream shop owner’s). That means two people have more money now, even though the bank only had one cookie jar to start with!

It’s like a game of passing around cookies. Every time someone takes a cookie from the bank, the bank just adds a new cookie to its jar, and soon everyone has way more cookies than they started with.