Most people are familiar with the concept of lending money and indeed most people have at some 2025

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When that loan is made, it increases the money supply because that money is now in two places - the original depositors account and in the borrowers pocket. We can predict the maximum change in the money supply with the money multiplier.
Loans are advanced for a number of reasons, including major purchases, investing, renovations, debt consolidation, and business ventures. Loans also help existing companies expand their operations. Loans allow for growth in the overall money supply in an economy and open up competition by lending to new businesses.
If you would know the value of money, go and try to borrow some. Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.
When a bank makes a loan, there are two corresponding entries that are made on its balance sheet, one on the assets side and one on the liabilities side. The loan counts as an asset to the bank and it is simultaneously offset by a newly created deposit, which is a liability of the bank to the depositor holder.
When a bank loan is repaid, the money supply decreases. This process is termed as destroying the money. For bank loans where the principal is repaid using installments, the money supply reduces with each installment.
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