Question

Deposit creation occurs when:  Someone deposits a payroll check into a transactions account at a bank.  A bank borrows reserves from the Federal Reserve.  A person puts cash in a bank and the bank holds all of it as reserves.  Money enters the banking system and a portion of it is lent out.

Answer 1

A deposit creation when the bank creates loans from the deposits it receives.

The correct option is: Money enters the banking system and a portion of it is lent out. The depositors or savers will deposit their deposits or savings into the banks. The bank will keep some of their deposits with themselves in order to use it at the time of emergency while lend out the excess reserves to the borrowers and charges a rate of interest on the loans whereas it provides a very low interest rate to depositors.

Other options are wrong because:

Someone deposits a payroll check into a transactions account at a bank because there is no mention of bank which is lending these deposits to people.

A bank borrows reserves from the federal reserve does not show the deposit creation.

Someone deposits a payroll check into a transactions account at a bank. In this case, the bank is not making loans and its excess reserves are lying idle.