Henry Trudeau deposits $2,000 in currency in the First Street Bank. Later that same day Jane Harris negotiates a loan for $5,400 at the same bank. After these transactions, the supply of money has:
A) Increased by $2,100
B) Increased by $3,300
C) Increased by $5,400
D) Decreased by $3,300

C) Increased by $5,400

Explanation:

Money supply is defined as money that is in circulation. When deposits are made in the banks their demand deposits rise. The excess reserves that banks have is loaned out to create a supply of money in the economy.

In this scenario the $2,000 deposited by by Henry increases the bank's demand deposit. While the loan that Jane get from the bank ($5,400) increases the money supply by the bank to the general economy.