The commercial banking sector through its role of granting and creating credit in the

The commercial banking sector through its role of granting and
creating credit in the money creation process has a large influence on
the overall macro-economy. Specifically, their directing of credit has a
large impact on what type of transactions happen in the economy.  The
majority of loans that banks grant go towards existing assets–mainly
real estate.  This means that the majority of banks’ credit creation
goes towards unproductive transactions or transactions which don’t
increase GDP (The purchase and sale of existing real estate assets does
not add to GDP).Write at least two paragraphs answering the following questions:

1. Given that the majority of created credit goes towards existing
assets, what affect do you feel this has on asset price inflation?

2. Why do you think that banks grant the majority of their loans to
finance the purchase of existing assets or unproductive transactions?
(Remember banks are profit maximizing firms)