Money is destroyed when?

Question

A. loans are made

B. checks written on one banks are deposited in another bank

C. loans are repaid

D. the net worth of banking system declines

Answer 1

loans are paid, C

remember that when they are made, money is created because the banks takes liabilities on itself. we dont count debt but we do count profits so a loan of 1000 USD is not counted as -1000 for banks but +1000 for the load taker

Answer 2

C. loans are repaid.

Think about what you learned about when money is "made." When you have $100 and you go deposit it in a bank (and required reserve ratio is 20%). The bank then takes your $100 and loans out $80 of it. So now you have your $100 and the person who accepted the loan has $80 and the money supply has increased from $100 to $80 in this little scenario. If the loan is repaid, however, the money supply returns to $100.

Hope that helps.

Answer 3

money is destroyed when it's old. The Federal Reserve shreads it, puts it into small bags and small plastic bottles and sells it to the public.

Answer 4

Usually when I've left a fiver in my back pocket and it goes through the washing machine....

Answer 5

D