Example of an Internal Bank Transfer: The Alpha Bank Loan

Inter-Bank Transfers and Aggregate Money Creation

A commercial bank approves a $50,000 loan for a small business to purchase new equipment. The bank executes the loan by crediting the business's checking account with $50,000. Which statement best analyzes the immediate impact of this single transaction?

Bank Loan and Money Supply

Loan Creation and Bank Deposits

When a commercial bank approves a loan, its primary action is to transfer existing funds from the accounts of its depositors to the borrower's account.

When a commercial bank issues a new loan, it credits the borrower's account, creating a new deposit. This single transaction has several components and effects. Match each term below to its correct description in the context of this process.

When a commercial bank approves a $10,000 loan for a customer, it creates new money by directly crediting the customer's deposit account. This action increases the bank's assets in the form of the new loan and simultaneously increases its ______ in the form of the new deposit.

Critiquing the Bank Intermediary Model

A commercial bank approves a $20,000 loan for a customer to renovate their kitchen. The bank executes this by crediting the customer's checking account with the full $20,000. Which statement provides the most accurate analysis of the financial positions of both the bank and the customer immediately after this transaction, but before any funds are spent?

Tracing a Loan's Impact on Bank Deposits