Under fractional reserve banking,what occurs when a bank lends to a customer?

Question

Quizplus · Accepted Answer

When a bank lends to a customer, they are creating new money in the form of a demand deposit for the borrower. This is because, under fractional reserve banking, banks only need to hold a percentage of deposits as reserves and can lend out the rest. Therefore, when a bank makes a loan, they are effectively creating new money in the economy. Reserves may decrease temporarily, but the bank will seek to replenish them later. Bank credit does not necessarily decrease as the loan increases the bank's assets and liabilities by the same amount. The bank is not necessarily protected from a run, as it depends on the level of reserves and the confidence of depositors in the bank.

Under Fractional Reserve Banking,what Occurs When a Bank Lends to a Customer