Ordinary commercial banks can expand the supply of money by

Question

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Ordinary commercial banks can expand the supply of money by using a portion of their deposits to extend additional loans. This process is known as "fractional reserve banking" where banks keep a fraction of deposits as reserves and lend out the rest. As a result, the money supply increases as loans create new deposits in the system. The other options mentioned are not accurate. Banks do not print currency, it is the responsibility of the central bank. Buying and selling government bonds may affect the interest rate but does not necessarily lead to an increase in the money supply. Finally, reducing vault cash and increasing deposits with the Fed reduces the bank's ability to lend as it reduces their reserves.

Ordinary Commercial Banks Can Expand the Supply of Money by