Question

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction, __________.

a. a claim has been "demonetized."b. the supply of money declines by the amount of the loan.c. the supply of money is increased by $5,000.d. the Metro Bank acquires reserves from other banks.

Answer 1

Answer: C. the supply of money is increased by $5,000.

Explanation: Promissory note is a financial instrument that is promised by the note issuer or make to another party the note's payee a define amount of money either on demand or in the future.

If Standard internet negotiated a loan for $5,000 and received a checkable deposit for that amount in exchange for its promissory note. The result of this transaction will increase supply of money by #5,000.