Asked by Aerial Johnson on May 11, 2024
Verified
If people choose to hold some of a newly received loan as cash instead of keeping it in a checking account,_____.
A) the money supply will not increase as much as it would had borrowers deposited all of the money
B) the money supply will remain unchanged
C) the money supply will decrease as much as it would had borrowers deposited all the money
D) the banking system will collapse
E) the economy will experience a recession
Money Supply
The complete value of all money resources in an economy during a particular time frame.
Checking Account
A bank account that allows easy access to funds, typically through checks and electronic debits, for everyday transactions.
Newly Received Loan
Funds borrowed for the first time, typically involving an agreement on repayment terms and interest rates.
- Assess the consequences of keeping cash versus banking deposits on monetary supply.
- Apprehend the significance of commercial banks in the augmentation of money supply through loans and deposits.
Verified Answer
TL
Taylor LeichtMay 18, 2024
Final Answer :
A
Explanation :
If some of the newly received loan is held as cash instead of being deposited into a checking account, the amount of money that is circulating in the economy will not increase as much as it would have had all of the money been deposited. This is because cash is not counted as part of the money supply, whereas deposits are. Therefore, the money supply will increase, but not as much as it would have if all of the loan had been deposited.
Learning Objectives
- Assess the consequences of keeping cash versus banking deposits on monetary supply.
- Apprehend the significance of commercial banks in the augmentation of money supply through loans and deposits.