When new checkable deposits are created through loans,
A) the money supply contracts.
B) excess reserves are destroyed.
C) the money supply remains the same.
D) the money supply expands.
E) the required reserve ratio declines

Question

Quizplus · Accepted Answer

When new checkable deposits are created through loans, the money supply expands. This is because the loans create new deposits, which are counted as part of the money supply. The banks are required to hold only a fraction of the new deposits as reserves, allowing them to lend out the rest and expand the money supply.

When New Checkable Deposits Are Created Through Loans