When someone takes out a loan at a bank,the money supply becomes smaller.
By taking out a loan,money will be paid to a third party,who then deposits the money,which becomes available for new loans.

Question

Quizplus · Accepted Answer

When someone takes out a loan at a bank, the money supply actually increases because the bank creates new money through the process of fractional reserve banking. The amount of deposits available for new loans may increase as a result of the loan, but the overall money supply has increased due to the creation of new money.

When Someone Takes Out a Loan at a Bank,the Money