Henry Trudeau deposits $2,000 in currency in the First Street Bank.Later that same day Jane Harris negotiates a loan for $5,400 at the same bank.This loan alone will:
A)increase the supply of money by $2,100.
B)increase the supply of money by $3,300.
C)increase the supply of money by $5,400.
D)decrease the supply of money by $3,300.

Question

Quizplus · Accepted Answer

When Jane Harris negotiates a loan for $5,400, the bank creates new money in the form of a loan, increasing the money supply by the full amount of the loan, $5,400.

Henry Trudeau Deposits $2,000 in Currency in the First Street