All else equal, the _____ the amount of cash held by individuals and the _____ the amount of loans given out by commercial banks, the higher the amount of money created as a result of Federal Reserve buying Treasury securities.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys Treasury securities, it injects money into the banking system, increasing banks' reserves. If individuals hold less cash (outside the banking system) and banks give out more loans, this process amplifies the money creation effect through the money multiplier, leading to a higher amount of money created.

All Else Equal, the _____ the Amount of Cash Held