Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Banks can turn a borrower's IOU into money through the process of fractional reserve banking, where they only hold a portion of their depositors' funds in reserve and lend out the rest. When a borrower takes out a loan, the bank creates a matching deposit in their account, effectively creating new money in the economy. The other statements are incorrect. The Fed uses a variety of tools, including open market operations, to control the money supply. The discount rate is the rate at which banks can borrow from the Fed, not the rate they charge their customers. While the reserve requirement can be changed, the Fed has not done so frequently in recent years. The Fed earns income through interest on its assets and does not rely solely on appropriations from Congress.

Which of the Following Statements Is Correct