The money supply will grow even larger through deposit creation when

Question

Quizplus · Accepted Answer

When consumers, businesses, and government increase their borrowing, banks have more funds to lend out, which leads to an increase in deposit creation and a larger money supply. Choice A is incorrect because using cash instead of checks does not affect the money supply as cash is already in circulation. Choice C is incorrect because if banks stop making new loans, there will be less deposit creation and a smaller money supply. Choice D is incorrect because if people move money out of banks and into bonds, there will be less deposit creation and a smaller money supply.

The Money Supply Will Grow Even Larger Through Deposit Creation