When a bank has unplanned reserves
A) it can create money.
B) it can make loans.
C) it has too many loans.
D) Both answers A and B are correct.

Question

Quizplus · Accepted Answer

When a bank has unplanned reserves, it means it has excess funds beyond what is required to meet its reserve requirements. This excess can be used to create money through the lending process (as loans given out can be deposited and re-lent in a fractional-reserve banking system), and directly, it can make more loans. Both of these activities increase the money supply.

When a Bank Has Unplanned Reserves