Question

Banks can create money:


only by illegally printing additional notes


by paying interest to their depositors


by making loans that result in additional deposits


by offering financial services, such as stock market brokerage

Answer 1

Banks can create money primarily **by making loans that result in additional deposits**. When banks provide loans, they effectively create new deposits in the banking system, which increases the overall money supply. This process occurs through the fractional reserve banking system, where banks are required to keep a fraction of depositors' funds as reserves while they can lend out the majority of deposits to borrowers.

The other options listed do not accurately represent how banks create money within the economy.