When cash or coins are deposited in a transactions account at a bank,the money supply immediately increases by the amount of the deposit multiplied by the money multiplier.

Question

Quizplus · Accepted Answer

When cash or coins are deposited into a transaction account at a bank, the money supply does not immediately increase because the deposited cash simply shifts from being held by the public to being held by the bank. The overall money supply remains the same until the bank lends out a portion of the deposit, which can then potentially increase the money supply through the money multiplier effect.

When Cash or Coins Are Deposited in a Transactions Account