When the First Bank of Townsville makes a loan,it

Question

Quizplus · Accepted Answer

When the First Bank of Townsville makes a loan, it creates a checkable deposit. This means that it increases the overall supply of money in the economy, rather than decreasing it. Option A is incorrect because banks do not have the authority to print money. Option B is incorrect because the bank does not necessarily need to borrow from the Federal Reserve to make loans. Option D is incorrect because making a loan would not decrease the quantity of money. Option E is also incorrect, since making a loan would decrease the bank's reserves.

When the First Bank of Townsville Makes a Loan,it