The amount of checkable deposits in an economy cannot exceed the amount of currency that the government has issued.

Question

Quizplus · Accepted Answer

Checkable deposits can exceed the amount of currency issued because banks are allowed to create money through the process of lending and fractional reserve banking. This means that banks can hold only a fraction of the funds deposited by customers and use the rest to make loans, creating new deposits in the process. Therefore, the amount of checkable deposits can exceed the amount of currency issued by the government.

The Amount of Checkable Deposits in an Economy Cannot Exceed