Question

A bank creates money when it: a. gets new checkable deposits which the depositor formerly held as cash. b. gets more excess reserves because of a decrease in the required reserve ratio. c. makes a loan from its excess reserves. d. has a loan paid off, which creates excess reserves for the bank. e. holds back excess reserves because of an increase in the required reserve ratio.

Answer 1

Answer:

C. Makes a loan from its excess reserve ratio.

Explanation:

Money is created by the government when it decides to print it but banks can also create money, but they do  not print it. When a dollar is deposited in the bank account its total reserve increases. It keeps some of the required reserves and loans the excess reserves out.  And this “ Loan” increases the money supply. This is how money is created by the bank and it increases the money supply. Maximum change in the money supply can be predicted by the money supplier.