When a bank makes a loan,it

Question

Quizplus · Accepted Answer

When a bank makes a loan, it creates a transactions account balance for the borrower. This means that the bank adds money to the borrower's account, which increases the total amount of money in the monetary system. The other choices are not accurate. Making a loan does not necessarily reduce the amount of money in the monetary system (choice A), as it can lead to increased spending and economic activity. Banks are insured against losses from borrowers who fail to pay off their loans, but this does not affect the process of making a loan (choice C). Banks are required to hold reserves (deposits) to cover potential losses, but this is not necessarily an equal amount to the loan (choice D).

When a Bank Makes a Loan,it