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you money supply finding the right balance once upon a time if you need it alone you would go to your local bank which would issue you a bill of exchange the grandfather of paper currency eventually the total value of the bills of exchange issued by banks began to exceed the amount of gold they actually had in reserve however this wasnt necessarily a problem since it was unlikely that everyone who had deposited gold with a given bank would demand to withdraw it at the same time a similar system still exists today when a bank grants a loan it uses an accounting entry to create money that it doesnt physically have this money then circulates in the real economy like if a family takes out a loan to buy a car or washing machine for example the sales of such Goods boost the revenue of the companies that make them and this revenue is used to pay employees salaries as borrowers pay back their loans the money is taken out of circulation in the economy think of our economy as a huge auction h