OpenAI’s ChatGPT usage has seen a significant and almost undisputed increase since its official release in November 2022. But now, Google has officially announced Bard, its response to ChatGPT. How do they fight in head-to-head combat? Let’s check it out.
To help everyone decide which platform provides better responses to different types of queries, we provide the exact same prompts for both AI platforms and share their responses here.
AI (Fractional Reserve Banking) Explaining the Concept
First, let’s see how good they are at explaining concepts to us. As we watch one domestic US bank after another fail, even taking Credit Suisse along the way, I address the latest topic on many people’s minds.
prompt
Can you explain the meaning of fractional reserve banking and its implications in 500 words or less?
ChatGPT response
(Note: The length of the response was actually 519 words)
Fractional reserve banking is a system used by most modern banking institutions that allows banks to keep only a portion of the deposits they receive in reserve, while lending out a portion of it. Under this system, banks are required to hold a certain percentage of customer deposits in reserves, usually in the form of cash or deposits with a central bank. The remaining deposits can be used for loans and other activities.
The main meaning of fractional reserve banking is money creation. When a bank receives a deposit, it keeps a portion of it as reserves and lends out the remaining amount. Borrowers use the loan amount to make payments, purchases, and ultimately deposit it with other banks. These banks can also lend out some of the new deposits they receive, and this process continues, creating a cycle of lending and deposit creation.
This process effectively increases the money supply in the economy. For example, if the reserve ratio is 10%, the bank can lend out 90% of the deposits it receives and generate new loans and deposits. This means that his one deposit of $1,000 could result in a new loan of $900 and subsequent deposits of $900 in new banks at other banks. As a result, an initial deposit of $1,000 effectively leads to an increase in the money supply of $900. This expansion of the money supply through lending is known as the money multiplier effect.
Fractional reserve banking allows banks to earn interest on loans and other investments, which is their main source of income. It also enables the efficient allocation of capital in the economy by providing companies, individuals, and other entities with funds for investment and expenditure.
However, fractional reserve banking also involves certain risks. Banks only hold a small portion of their total deposits in reserve, which can lead to runs and panic attacks where depositors rush to withdraw their funds en masse. If a large number of depositors request funds at the same time, banks may not have sufficient reserves to meet all withdrawal requests, which could lead to a liquidity crisis and bank failure. To mitigate this risk, central banks often act as lenders of last resort, providing emergency liquidity to banks facing such situations.
Additionally, expansion of the money supply through fractional reserve banking can contribute to inflationary pressures in the economy. A rapid increase in the money supply can lead to higher prices because more money is chasing the same amount of goods and services. Central banks play an important role in managing these inflationary pressures by adjusting interest rates and implementing other monetary policy instruments.
In summary, fractional reserve banking is a system in which banks hold only a portion of customer deposits as reserves and lend out the rest. It allows money creation and facilitates loans and investments. However, they also involve risks related to liquidity and inflation, which banks and central banks must manage carefully.
Bird’s reply (345 words)
Fractional reserve banking is a system in which banks are required to hold only a portion of their deposits as reserves. The remaining deposit can be loaned out to the borrower. This system allows banks to generate money, which helps promote economic growth.
Here’s how fractional reserve banking works:
- A person deposits $100 in a bank.
- The bank must have $10 in reserve and can lend the remaining $90.
- The borrower receives $90 and uses it to purchase a car.
- The car dealer deposits that $90 in another bank.
- The second bank must have $9 in reserve and can lend the remaining $81.
- This process continues, with each bank lending out a portion of the deposit.
As you can see, fractional reserve banking can lead to a rapid increase in the amount of money in circulation. This may be a good thing because it helps promote economic growth. But it’s also bad because it can cause inflation and financial instability.
One of the main effects of fractional reserve banking is that it can give rise to attached attachments. A run is a situation where a large number of depositors try to withdraw money from a bank at the same time. This can happen if people lose confidence in banks’ ability to repay their debts. A successful mount could force the bank to close.
Another implication of fractional reserve banking is that it can cause inflation. Inflation is a general increase in prices. That can happen when there is too much money in circulation. When banks create money by lending their deposits, the money supply increases. This can cause inflation, as the prices of goods and services rise in response to an increase in the money supply.
Fractional reserve banking is a complex system with both positive and negative impacts.It’s important to understand how it works so you can make informed decisions about its use
Bard did a more concise job overall, explaining difficult concepts and managing them in fewer words. Numbered points also help explain the “how” more clearly.
ChatGPT, on the other hand, provided a much more comprehensive answer, provided a good structure for the answer, and even had a nice summary paragraph to read at the end.
I think which version you prefer depends on how you take in the information.
In the next challenge, two generative AIs battle to the death in a creative challenge, a novel outlining exercise.