What percentage of money in the U.S. economy is created by private commercial banks?

The correct answer reflects the significant role of private commercial banks in the money creation process within the U.S. economy. In modern economies, including the U.S., a large portion of money in circulation is created through the banking system, primarily via the process of fractional reserve banking.

When banks receive deposits, they are required to keep only a fraction of these deposits as reserves and can lend out the remainder. This lending creates new money, as the loans made by banks are subsequently deposited into other banks, which can again lend out a portion of those funds. This cycle of deposit and lending is what leads to a substantial increase in the total money supply beyond the physical currency issued by the government.

In the U.S., it is estimated that around 90-95% of money in the economy is created by the banking system through these lending mechanisms. This means that over 90% of the total money supply is attributed to the activities of private commercial banks. Thus, selecting an option stating that more than 90% of money in the U.S. economy is created by private commercial banks accurately reflects their pivotal role in the financial system.

Each of the other options underestimates the influence and capabilities of banks in the money creation process. By focusing