Question

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Answer 1

Answer: b. an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply.

Explanation:

Banks make money by loaning out money to people and companies. This means that loans are an asset to banks because it enables them to generate cash.

Kellie's Print Shop will have to pay back to loan however which means that it is a liability to them because they owe the bank.

This loan will not increase the money supply because if not explicitly stated that it does, we assume that the loan was made from bank deposits by other bank customers which means that it is already part of the money supply.