When a bank makes a loan:

Question

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When a bank makes a loan, they create a transactions-account balance for the borrower. This means that they add an equal amount of money to the borrower's account, effectively increasing the money supply. However, this also creates a liability for the borrower in the form of the loan, which must be paid back with interest. The bank does not typically give the borrower cash, and they do not print additional money for the borrower. While the bank does reduce their own reserves when making a loan, this does not necessarily reduce the overall amount of money in the monetary system.

When a Bank Makes a Loan