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Let $\pi$ be the fine that needs to be paid besides the parking fee (say, $\phi$) if he gets caught. Further, he may or may not get caught for not paying. So let $p$ be the probability perceived by John about whether he will be caught. Let $u(x)$ be utility function of paying for amount $x$, with $u(0)=0$, $u'(x)<0$. If he pays the parking fee $\phi$ he ...

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The key to answering your question is to consider whether or not the bank that has just extended a new loan must make an interbank payment of reserves. So let bank A extend a loan 100 to customer 1. The bank debits loan assets for an increase 100 and credits deposit liabilities due to customer 1 for an increase 100. The bank balance sheet expands. Assume ...

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The question in the title is actually a bit broader than the question in the body, I will try to answer both questions starting with the one in the title. Answer to Question in the Title Can banks 'create' money on their own or do they need help from other banks? Yes, banks actually can crate deposits on their own without help of other banks, thanks to ...

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Virtually same question was already addressed at quantitative finance stack by user Matthew Gunn. The answer there can be summed as: Financial economics is what economics calls finance. Finance is what finance calls finance. Less flippantly though, there's a long debate on whether finance is a subfield of economics, ... Prof. Milton Friedman famously ...

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With many financial variables you can deduce the distribution from the options market , but there isn’t a sufficiently developed inflation options market (at least in the US). However, experience shows that market participants are unwilling to sell options with strikes either very low (say 0%) or very high (say 5%) at anywhere near theoretical prices, ...

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