Summary Describes a number of things that can cause the banking system to stop functioning. This includes a liquidity crisis when depositors demand their money back immediately, or insolvency when a banks assets are worth less than its liabilities. This video also addresses the common conception that during the Gold Standard era every dollar in circulation was backed fully by gold. Videos to watch before How did the banking system come into existence?
Category: Banking System
How did the banking system come into existence?
Summary Explains how society evolved from using Gold coins for transactions to having a banking system that creates credit/loans from the savings/deposits of others. The banking system described is similar to the banking system under the Gold Standard (i.e when currency was backed by a commitment by the government to exchange each note for a fixed amount of gold). Videos to watch before None needed
How do interest rates affect the money supply?
Summary This video discusses how interest rates determine the money supply in an economy. An interest rate increase causes a tightening of lending by causing money to be loaned to those who are most likely to produce a higher returns. The interest rate also affects the incentives of savers to keep money in the bank as opposed to spending/investing it. Videos to watch before How did the banking system come into existence?