Money supply would expand if people chose to hold borrowed funds in cash rather than in checking accounts.

Question

Quizplus · Accepted Answer

When people hold borrowed funds in cash rather than depositing them into checking accounts, it does not increase the money supply because the overall amount of money in circulation remains the same. The expansion of the money supply typically occurs through the banking system's ability to lend more than the initial deposits (fractional-reserve banking), which is not directly affected by whether individuals hold their funds in cash or in checking accounts.

Money Supply Would Expand If People Chose to Hold Borrowed