Banks create money by
A)printing paper money.
B)minting coins.
C)making loans.
D)buying government securities.
E)None of the above because banks cannot create money;only the Federal Reserve can create money.

Question

Quizplus · Accepted Answer

Banks create money through the process of making loans. When a bank approves a loan, it creates a new deposit in the borrower's account, which increases the total amount of deposits and therefore the money supply in the economy. This is known as the money multiplier effect. While the Federal Reserve also plays a role in money creation through its control of the money supply, banks are able to create money through their lending practices.

Banks Create Money by