The main functions of a commercial bank
Commercial banks accept deposits from savers and lend that money to borrowers. They also operate payment systems and create new money through lending.
Formula
Money multiplier = 1 ÷ Reserve ratio
Real World
When HSBC accepts a £10,000 deposit and lends out £9,000 of it as a mortgage, it has created new purchasing power in the economy — a process that, repeated across millions of accounts, expands the money supply far beyond the original deposit.
Exam Focus
When explaining money creation, explicitly state that loans become deposits elsewhere — this chain logic earns higher-level marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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