Question

Assume that Smith deposits $500 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for $2,000 at the same bank. In what direction and by what amount has the supply of money changed?

Answer 1

Answer: See explanation

Explanation:

Supply of money simply means the money available at a particular time period for an economy.

In the above scenario, the loan of $2000 will lead to an increase in the supply of money available in the economy by $2000.

It should be noted that the deposit made by Smith in the value of $500 does not bring about in the change of the money supply. This is because tye. $500 is still considered to be part of the money supply that is available in the economy.