Assume that Smith deposits $600 in currency in the XYZ Bank.Later that same day Jones negotiates a loan for $1,200 at the same bank.In what direction and by what amount has this single transaction changed the supply of money?
A)decreased by $1,200
B)increased by $1,200
C)increased by $600
D)increased by $1,800

Question

Quizplus · Accepted Answer

The deposit of $600 increases the money supply by $600, and the loan of $1,200 increases the money supply by $1,200. So the total increase in the money supply is $1,200 + $600 = $1,800.

Assume That Smith Deposits $600 in Currency in the XYZ