The process of money creation can be reversed:

Question

Quizplus · Accepted Answer

When a person pays a loan back to a bank, the money that was created through the loan is destroyed. This is because the money was created through the process of fractional reserve banking, where banks only keep a fraction of deposits on hand and lend out the rest. When the loan is paid back, the money created through that loan is removed from circulation.

Option B is not correct because the government passing a law against money creation would not reverse the process of money creation that has already occurred.

Option C is not correct because deposits into banks actually increase the amount of money in circulation through the process of fractional reserve banking.

Option D is not correct because loans extended to customers are the initial step in the process of money creation.

The Process of Money Creation Can Be Reversed