When a bank makes a loan by crediting the borrower's chequing account balance with an amount equal to the loan,
A) money is created.
B) the bank gains new reserves.
C) the bank immediately loses reserves.
D) money is destroyed.
E) the Bank of Canada has made an open-market purchasE.

Question

Quizplus · Accepted Answer

When a bank makes a loan by crediting the borrower's chequing account balance, they are creating new money in the economy. This is because the loan amount is added to the borrower's account balance, which can now be spent or transferred to another account, allowing for multiple claims on the same money. This process of creating new money through loans is known as the money creation process.

When a Bank Makes a Loan by Crediting the Borrower's