The magic of money creation as practiced by private banks is the topic of this lesson. While it seems like magic, money creation is a fundamental aspect of fractional-reserve banking. As such, in this lesson we take a look at why and how banks create money (a task they would seem to be the exclusive privilege of government). This examination of money creation provides insight into how government is able to control the economy's money supply.

• The first unit introduces the magic of money creation, as practiced by the banking system.
• The second unit presents a hypothetical example of money creation as practiced by Fred the Goldsmith, where the money is different, but the process is comparable to modern banks.
• The third unit of this lesson, then examines a detailed example of how the banking system goes about creating money when it has an injection of excess reserves.
• In the fourth unit, the money creation process is summarized in terms of a deposit multiplier, which a thought or two on how this can be expanded to a money multiplier, which interests government as it seeks to control the money supply.
• The last unit of this lesson examines the money creation process in the context of monetary policies and government control of the money supply.

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