Question

Allen deposits $2,000 in his local bank. He earns 2 percent interest each year on his deposit. Jessica borrows $1,000 from the same bank. She is charged a 7 percent interest rate on the borrowed money. How do these bank practices affect the money supply in the community?

In Allen's case, but not Jessica's, the money supply decreases.
In both Allen's and Jessica's cases, the money supply decreases.
In Jessica's case, but not Allen's, the money supply stays the same.
In neither Jessica's nor Allen's case does the money supply increase.

Answer 1

Am I right wtih A?

Answer 2

@06natrod52378

Answer 3

@allison

Answer 4

anyone?

Answer 5

Allen deposits (adds in) $2000, with a 2% interest rate,
Jessica borrows (takes away) $1000, with a 7% interest rate.

It would be B because BOTH Allen and Jessica get an interest rate added to their deposits and loans.

Answer 6

Ohhh okay. thanks for correct me

Answer 7

correcting*

Answer 8

B is incorrect,
"It would be B because BOTH Allen and Jessica get an interest rate added to their deposits and loans." an interest rate has little to do whether money supply decreases or increases, instead look at the effect. Allen is depositing and making money off the bank, while Jessica is lending money, taking money from the bank. The interest serves to say that if a deposit is made the person who made a deposit will get more money back over time, and if they lend they will have to give more money back over time. Based on that info which do you think is correct?