Question

Allen deposits $2,000 in his local bank. He earns 2 percent interest each year on his deposit. Jessica borrows $1,000 from the same bank. She is charged a 7 percent interest rate on the borrowed money. How do these bank practices affect the money supply in the community?
A) In Allen's case, but not Jessica's, the money supply decreases.
B) In both Allen's and Jessica's cases, the money supply decreases.
C) In Jessica's case, but not Allen's, the money supply stays the same.
D) In neither Jessica's nor Allen's case does the money supply increase.

Answer 1

B is the answer choice

Answer 2

B) In both Allen’s and Jessica’s cases, the money supply decreases