Banks create money when they:
A)add to their reserves in the Bank of Canada.
B)accept deposits of cash.
C)sell government bonds.
D)exchange demand deposits for the IOUs of businesses and individuals.

Question

Quizplus · Accepted Answer

Banks create money by exchanging demand deposits (which are liabilities of the bank) for IOUs of businesses and individuals (which are assets of the bank). This process is known as deposit creation and is a key function of the banking system. Adding to reserves in the Bank of Canada, accepting deposits of cash, and selling government bonds do not directly create money.

Banks Create Money When They