Often it is claimed that banks create money by making loans. How can commercial banks create money? Is the....?

government the only institution that can legally create money? 2) The quantity theory states that the impact of money on nominal GDP can be determined without details about the aggregate demand curve, so long as the velocity of money is predictable. What is the reasoning behind this claim?

1. the government and the FED can print currency.The banking system can create money because of fractional reserve requirement. 2. MV=PY, PY is nominal GDP, M is money supply. It is then only V or velocity) left to predict PY from M. More than that the monetarist make always the assumption that V is constant. It is a shame. Friedman found that V is changing with inflation, and he is monetarist.So the relation and prediction can not hold.

Wealth can neither be created nor be destroyed but can be changed from one form to another. Here is mathematical proof (if believe me and if you ignore what economists say). Can one add 3a and 2a? Yes. Answer is 5a. Can we subtract 5a fro 7a? Yes. The answer is 2a. Can one add 2a and 3b? Can one subtract 5a from 7b? No. Wealth only be added to or subtracted from wealth. Hence wealth can neither be created nor be destroyed but can be changed from one form to another. Banks change deposits into loans and they do not create money. It is time we study high school mathematics seriously.

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