When a financial depository institution makes a loan it:
A) creates money.
B) borrows funds from the Federal Reserve.
C) converts vault cash to a demand deposit.
D) shifts funds from depositors' accounts to borrowers' accounts.

Question

Quizplus · Accepted Answer

When a financial depository institution makes a loan, it essentially creates money. This is because the loan becomes a deposit in the borrower's account, increasing the total amount of money in the banking system.

When a Financial Depository Institution Makes a Loan It