How banks create credit
Banks create new money every time they make a loan. The borrower's account grows, and that new deposit can be lent out again — multiplying the original sum many times over.
Formula
Money Multiplier = 1 ÷ Liquidity Ratio
Real World
When NatWest receives a £10,000 deposit and holds 10% as reserves, it lends out £9,000 — that loan becomes a deposit elsewhere, and the process repeats until the total money supply has expanded to £100,000.
Exam Focus
Always show the multiplier formula and state total money creation, not just the first round of lending.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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