Assume that a single bank has decided to issue new loans equal to $50,000. Then it is true that
| A. |
it will convert an equal amount of securities into loanable funds |
|
| B. |
it will increase the money supply by $50,000 |
|
| C. |
it will remove funds immediately from its reserves to make the loans |
|
| D. |
it will add funds immediately to its reserves |
|
| E. |
it will decrease the money supply by $50,000 |
Answer
Option C
it will remove funds immediately from its reserves to make the loans
Loans are done from excess reserves and as the bank does loans the reserves decreases and loan amount on the asset side of the bank balance sheet increases.
The money supply does not change up to the loan amount is forwarded to a checking account or withdrawal into cash by the borrower.
Assume that a single bank has decided to issue new loans equal to $50,000. Then it...