Question

Which statement is true about banks and the money supply?

Answer 1

Answer:

A bank increases money supply giving away loans

Explanation:

A bank will increase their money supply when they offer a loan to it's customers. This is because the bank will charge a fee, called an interest when the borrower  returns the money. The bank may have preset installments on which the borrower may pay back with corresponding interest rates.

Typically, the lower the interest rates the longer the period for returning the money is. This is more attractive to the borrower since paying back smaller amounts is manageable with lower fees. This method, however, collects more money in the end in favor of the bank.

By making more loans available the bank is able to make more money.