A bank expands the quantity of money directly by
A) taking in reserves in return for checking deposits.
B) buying and selling bonds with the Federal Reserve.
C) making loans.
D) taking in reserves in return for time deposits.

Question

Quizplus · Accepted Answer

Banks expand the quantity of money by making loans. When a bank makes a loan, it creates a new deposit for the borrower, increasing the overall money supply. The other options (A, B, and D) involve either exchanging reserves or buying and selling bonds with the Federal Reserve, which can indirectly affect the money supply but does not directly expand it.

A Bank Expands the Quantity of Money Directly by