The process by which financial institutions lend money, thereby increasing the money supply.
Credit creation is the process by which banks and other financial institutions generate new money in the form of credit. When a borrower takes out a loan, the bank essentially creates new money that did not exist before, which is then added to the economy's money supply. This process is fundamental to modern financial systems and economic growth, but it is also linked to the potential for economic instability if not managed prudently.