If you deposit $800 in a chartered bank and later that day your friend borrows $500 from this bank, the money supply has increased by:

Question

Quizplus · Accepted Answer

The money supply has increased by $500 because the bank has created a new loan of $500, which is added to the money supply. The deposit of $800 does not increase the money supply because it is simply a transfer of funds from one account to another.

If You Deposit $800 in a Chartered Bank and Later