A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank. The commercial bank then lends $4,000 to a borrower. As a consequence of these transactions, the size of the money supply has

Question

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When the bank lends $4,000, it creates new money in the form of a loan, increasing the money supply by that amount. The initial deposit does not change the money supply as it was already part of it.

A Commercial Bank Has No Excess Reserves Until a Depositor