An increase in loans by financial depository institutions increases:
A) total spending, but takes dollars out of circulation.
B) the money supply, but has no effect on total spending.
C) the money supply, and leads to an increase in total spending.
D) consumer indebtedness, which leads to a decrease in total spending.

Question

Quizplus · Accepted Answer

When financial depository institutions increase loans, they essentially create new money, which increases the money supply. This additional money can then be spent, leading to an increase in total spending in the economy.

An Increase in Loans by Financial Depository Institutions Increases