A bank can create new money only when

Question

Quizplus · Accepted Answer

A bank can create new money when it has excess reserves, which means it has more reserves than legally required to cover its outstanding deposits. When a bank makes a loan and deposits the funds into a borrower's account, the bank's liabilities (deposits) increase, but so do its assets (the loan). This creates new money in the economy since the borrower can use the funds to spend or invest. However, if a bank's reserves fall below the required amount, it may need to reduce lending or borrow reserves from other banks or the Federal Reserve, which would limit its ability to create new money.

A Bank Can Create New Money Only When