When a bank holds excess reserves
A) it can make loans.
B) it can create money.
C) it has too many loans.
D) Both answers A and B are correct.

Question

Quizplus · Accepted Answer

When a bank holds excess reserves, it has the ability to make loans and create money. This is because excess reserves provide the bank with a greater capacity to expand its balance sheet and create new loans, which in turn creates new deposits and expands the money supply. Therefore, both answers A and B are correct.

When a Bank Holds Excess Reserves