asked 161k views
3 votes
Money-creating transactions of a bank ( _________________ ) directly impact the money supply..

asked
User UserYmY
by
8.0k points

1 Answer

2 votes

Answer:

Loans

Step-by-step explanation:

The money-creating transactions of a bank that directly impact the money supply are loans.

We can illustrate why with this simple example:

Suppose Bank of America gets a deposit of $800 and the reserve requirement is 20%, thus, it will keep $160 in reserve and loan out the remaining $640.

Bank of America Balance Sheet

Assets Liabilities

Reserves $160 Deposits $800

Loans $640

The $640 that is loaned out is money that is in the hands of a person other than the one who deposited the $800 in the first place. In other words it is new money that Bank of America has created when it made the loan.

No related questions found

Welcome to Qamnty — a place to ask, share, and grow together. Join our community and get real answers from real people.