The money supply will grow even larger through deposit creation when

Question

Quizplus · Accepted Answer

When consumers, businesses, and government increase their borrowing, it leads to more deposits being made in banks. Banks, in turn, create more money through the process of deposit multiplication, which further increases the money supply. Hence, option B is the correct option. Option A is incorrect because when people use cash for transactions, the money supply does not increase since cash is already a part of the money supply. Option C is incorrect because when banks stop making new loans, it leads to a decrease in the money supply since the process of deposit creation is stopped. Option D is incorrect because when people move money from banks to bonds, it leads to a decrease in the money supply since money is being taken out of circulation.

The Money Supply Will Grow Even Larger Through Deposit Creation