Question

Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply ________, but if the bank lends out some of the $100, the money supply ________.

Answer 1

Answer:

Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply remains at the same level, but if the bank lends out some of the $100, the money supply increases.

Explanation:

The money supply is the money offered by bank if all the 100 dollars goes into reserve then, the money supply is not using those 100 therefore, it is not increasing.

keeping those dollars in reverse do not change the current supply as the money offered by the bank is the same.

While using a portion of the 100 dolalrs to give a loan increase the available money.