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 amount has the supply of
Money changed?

Question

Quizplus · Accepted Answer

The loan of $1,200 increases the money supply because it creates new money in the form of a deposit in Jones's account, while Smith's deposit does not change the money supply as it is merely a transfer of existing currency into a deposit.

Assume That Smith Deposits $600 in Currency into Her Checking