When a commercial bank buys government (Treasury) bonds from the general public, money is created.

Question

Quizplus · Accepted Answer

When a commercial bank buys government bonds from the general public, it pays for these bonds by increasing the deposit balances of the sellers in their accounts, effectively creating new money in the economy. This process increases the money supply because the bank is creating deposits (which are part of the money supply) out of thin air.

When a Commercial Bank Buys Government (Treasury) Bonds from the General