Assume that Smith deposits $600 in currency into her checking account 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 amounthas the supply of moneychanged?

Question

Quizplus · Accepted Answer

The supply of money increases by the amount of the loan, $1,200, because the bank creates new money when it issues a loan. Smith's deposit does not change the money supply as it is simply a transfer from currency to a checking account.

Assume That Smith Deposits $600 in Currency into Her Checking