Does money get created only when the banks lend the money in the transaction account? What about when the money in the CDs and the savings accounts are lent out?
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The classic economist's definition of the U.S. money supply describes money as including currency in coin in circulation, plus transaction account balances (balances that can be spent by check) and traveler's checks. Using that definition, the money supply increases when funds are moved from savings and time deposits into transaction accounts or withdrawn in cash, or when loan proceeds are either paid out in the form of cash (which adds to currency and coin in circulation) or in the form of a credit to a transaction account (which increases transaction account balances). The source of the loaned funds (transaction account balances, savings balances, CD balances or borrowed funds) doesn't affect the money supply. It's the form in which the funds are advanced that matters.
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The classic economist's definition of the U.S. money supply describes money as including currency in coin in circulation, plus transaction account balances (balances that can be spent by 